In the Stanford GSB lectures, Peter Thiel spoke about secrets. But he defined secrets in a different way. A secret is not an unknown. Rather, it’s something just not widely believed to be achievable or feasible. In other words, it’s an insight, a thesis that isn’t widely held. Exploiting that secret should be the aim of every entrepreneur. Leveraging the secret means disruption and ultimately success.
Before you start a company, find this kind of secret – an insight that will help you maximize leverage against your competitors and that doesn’t oppose strength with strength.
How do you do that?
I think about it like Judo. There are two basic tenets of judo:
First: never to oppose strength with strength.
Second: maximize leverage.
You can’t compete with Google by building a better search engine. Google will put 100x the engineering team, leverage their 1,000x greater click data and out spend you on marketing by 10,000x. Don’t oppose strength with strength. Startups shouldn’t rely on more manpower, bigger ad budgets or data access advantages in fields where there is a large incumbent. During its infancy, Google won with distribution. Most internet companies believed search wasn’t valuable. Google thought differently. They offered to power all the major portals’ search engines and eventually dethroned them. This was Google’s secret.
The question, then, is what to leverage. Startups’ advantage is speed which means they can explore new technologies (mobile apps, Node, Meteor, Cassandra) which build better products, new distribution channels (mobile and tv app stores, viral, OpenGraph) which reach customers more cost effectively or novel product designs (Path, Dropbox, Expensify).
Many companies are now using distribution as their secret – mobile app stores and Facebook Open Graph enable startups to access hundreds of millions of users in ways that incumbents simply aren’t prepared to leverage. Expensify uses mobile app stores to acquire hundreds of thousands of SMBs in ways that their market’s incumbent, Concur (market cap $3B), simply can’t copy. Branchout is building a massive job network on top of Facebook to compete with LinkedIn. If LinkedIn were to copy Branchout, they would marginalize the value of their existing network because LinkedIn would cede their graph to Facebook – an example the classical innovator’s dilemma.
Find your secret and you’ll be well on your way to disrupting a huge market.
NB: Thiel does mention other kinds of secrets. For example, PayPal’s financial losses due to fraud which are secrets in the traditional sense. It’s important to think about the judo principles when deciding whether to keep these secret. Simply put, if a competitor can gain leverage by using the secrets you disclose, keep them closely held.
Thanks to Jarek who inspired this post with his comment on How to Pick Your Startup’s Market.