The business creating and providing valuable products or services nobody is building and is out of perfect competition is a monopoly business; that is a single seller in the market.
Creative monopoly means new products that benefit everybody and sustainable profits for the creator which can endure in the future.
Monopoly business owns its market setting its own prices and produce at own quantity that maximizes profits whereas competitive business must sell at the market price.
This means having competition is no profits for anybody, no meaningful differentiation, and a struggle for survival.
Characteristics of Monopoly
Every Monopoly is unique and there is no shortcut to monopoly. But every monopoly usually shares some similar characteristics which are as follows.
1. Proprietary Technology
Proprietary technology is unique, legally owned, or licensed business property with a combination of processes, tools, or systems that are developed and used internally to produce and sell products or services to the end-user or customer.
These combinations of technical innovation provide a competitive advantage to the owner of proprietary technology.
Proprietary technology can be the key determinant of success to a company because it makes the product difficult or impossible to replicate.
To lead to real monopolistic advantage, proprietary technology must be at least 10 times better than its closest substitute in some important dimension or through superior integrated design.
The clearest way to make a 10 times improvement is to invent something completely new or improve on an existing solution 10 times better, then only you can escape competition.
For example, Amazon made 10 times improvement by offering at least 10 times as many as any other bookstore.
2. Network Effects
If your product is valuable, network effects can be powerful and make a product more useful as more people use it.
For example; if all your friends are on Facebook, and Instagram it makes sense for you to join Facebook, and Instagram too.
But network effect may not work if your product is not valuable to its very first users especially when the network is necessarily small.
3. Economics of Scale
A good startup should have the potential for great scale built into its first design as the business gets bigger and stronger.
Many businesses like service businesses gain only limited advantages and profits as they grow to large scale and difficult to make monopolies.
But some companies like software startups can enjoy dramatic economics of scale because the marginal cost of producing another copy of the product is close to zero.
4. Branding
Creating a strong brand is a powerful way to create a monopoly.
Look at today’s strongest tech brand Apple: the attractive looks and carefully chosen materials of products like the iPhone and MacBook, sleek minimalist design, and close control over the consumer experience all create a strong, positive perception of a company that no one can compete with.
How to Create Monopoly?
Combinations of proprietary technology, network effects, the economics of scale, and brand define a monopoly but to get them to work, you need to choose your market carefully and expand deliberately.
1. Start Small and Monopolize
Like every startup is small at the beginning, you should start with a very small and perfect target market focusing on a small group of particular people concentrating together, and served by a few or no companies.
It is easier to dominate a small market than a large one, but small doesn’t mean nonexistent.
Targeting any big market is a bad choice, and a big market already served by competing companies is even worse.
2. Scaling Up
The most successful companies make the core progression to first dominate a specific niche and then scale to adjacent markets.
Once you create and dominate a niche market, then you should gradually expand to the number of people or expand to slightly broader and adjacent markets.
3. Don’t disrupt
Disruptors are people who look for trouble and find it. Disruptive startups and companies often pick fights they can’t win.
As you craft a plan to expand to adjacent markets, don’t disrupt. Avoid competition as much as possible. Don’t try to directly challenge any large competitor.
The Last Mover Advantage
You have probably heard about the “first-mover advantage”: if you are the first entrant into a market, you can capture significant market share while competitors struggle to get started.
But moving first is a tactic, not a goal. What really matters is generating cash flows in the future. So being a first mover doesn’t do you any good if someone else comes along and unseats you.
It’s much better to be the last mover that is to make the last great development in a specific market and enjoy years or even decades of monopoly profits.
The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.
This article is taken from the famous book “Zero to One” written by Peter Thiel which will be very helpful to start and run a successful business.
Peter Thiel is an entrepreneur and investor, who co-founded PayPal and Palantir. He made the first outside investment in Facebook, where he serves as a director. He has provided early funding for LinkedIn, Yelp, SpaceX, Airbnb, and dozens of successful technology startups.
