by Ray Keating
Prominent businessmen
don’t always understand how the economy actually works. That’s been evident on
the presidential campaign trail this year, with Donald Trump leading the
Republican field and Michael Bloomberg’s brief flirtation with jumping into the
race as an independent. Trump and Bloomberg clearly are clueless on a host of
issues – such as Trump on trade – regarding how the economy functions and how
policy impacts the economy. But, of course, there are many business leaders who
understand how the economy works, and even offer some rather unique insights.
That’s the case with Peter Thiel and his book “Zero to One: Notes on Startups,
or How to Build the Future.” The following review ran as a Long Island Business
News column of mine in October 2014 …
I recently headed west to Silicon Valley for a gathering
focused on technology policies. At the start of that journey, standing in an
airport bookstore, I decided to get the full Silicon Valley techie experience,
and picked up Peter Thiel’s new
book “Zero to One: Notes on Startups, or How to Build the Future.”
It’s a valuable, quick read that provides fascinating insights
on thinking about entrepreneurship and the economy, and what’s needed to start
up a business.
Thiel was a co-founder of PayPal, and has been an investor
in a variety of startups, including Facebook. His perspectives on how
businesses function in the economy are drenched in a refreshing economic
reality.
The central theme of Thiel’s message is the need to create
new things. He points out, “Doing what we already know how to do takes the
world from 1 to n, adding more of
something familiar. But every time we create something new, we go from 0 to 1.”
He warns, “Unless they invest in the difficult task of creating new things,
American companies will fail in the future no matter how big their profits
remain today.”
One would expect Thiel to declare that the word for “0 to 1
progress is technology.” However, he
quickly adds that it’s not all about computers: “Properly understood, any new
and better way of doing things is technology.” Another word for that is
innovation.
For Thiel, building the future and creating new things is
accomplished by monopolies. What? How can that be? Well, he has a better grasp
on how the economy actually works than many economists. Thiel correctly rejects
the concept of “perfect competition” that is taught in all Economics 101 classes,
whereby undifferentiated firms and homogeneous products sell at the market
price, and economic profits are competed away. That’s not how the economy
works, nor quite frankly, does it help students to understand the market
process.
But what about this monopoly thing? Thiel writes: “To an
economist, every monopoly looks the same, whether it deviously eliminates its
rivals, secures a license from the state, or innovates its way to the top. In
this book, we’re not interested in illegal bullies or government favorites; by
‘monopoly,’ we mean the kind of company that’s so good at what it does that no
other firm can offer a close substitute.”
While he does not put it exactly this way, what
entrepreneurs and businesses are doing within a competitive environment is
investing and innovating to create what effectively are temporary monopolies
that allow profits to be maximized. And the longer a firm excels at providing
something that consumers cannot get elsewhere, the longer the business can
maintain that temporary monopoly. That’s quite different from the
government-protected or created monopoly, for example, that grows fat, lazy and
rips off consumers.
As Thiel proclaims, “Creative monopolists give customers more choices by adding entirely new
categories of abundance to the world.”
Thiel’s subsequent advise and ideas for those looking to
start up new businesses spring from this basic understanding of what
entrepreneurs and businesses need to do – that is, to create something new and
better – if they seek bold success. And he offers many valuable insights on
that process. But among my favorite bits of wisdom tie in to how to think about
business and career – one has to do with chance and the other secrets.
On business success being all about chance, Thiel counters
that if that were the case, we would not see the successful serial
entrepreneurs that we obviously do. He adds: “Learning about startups is
worthless if you’re just reading stories about people who won the lottery.”
And on creative secrets, he provocatively but accurately
writes, “The best entrepreneurs know this: every great business is built around
a secret that’s hidden from the outside. A great company is a conspiracy to
change the world; when you share your secret, the recipient becomes a fellow
conspirator.”
So, here’s to those creative, conspiratorial monopolists who
change the world.
______________
Mr. Keating is an
economist and novelist who writes on a wide range of topics. His Pastor Stephen
Grant novels have received considerable acclaim, including The River: A Pastor
Stephen Grant Novel being a finalist for KFUO radio’s Book of the Year 2014,
and Murderer’s Row: A Pastor Stephen Grant Novel winning Book of the Year 2015.
The Pastor Stephen
Grant Novels are available at Amazon…
