From 0 to 1: unlocking the secrets of business and the future

Chapter 10 Late-mover advantage (2)
4. Brand advantage
The most obvious monopoly of a company is the monopoly of its own brand, so building a strong brand is a powerful way to form a monopoly.Today's most powerful technology brand is Apple: products like the iPhone and MacBook, with attractive looks, carefully selected materials, sleek minimalist design, careful research on the consumer experience, ubiquitous advertising, and the quality of products. The price and the charisma of Jobs allowed Apple to create a brand of its own.

Many companies want to emulate Apple: spend money on advertising, open branded stores, use luxurious materials, give humorous keynotes, set high prices, and even copy its minimalist design.But these superficial technologies without strong inner substance support simply don't work.Apple has a complex set of patented technologies in hardware (such as super touch screen materials) and software (such as touch screen interfaces designed for specific materials).Its production scale is large enough to dominate the market price of raw materials.And its content ecosystem brings strong network effects: thousands of developers write software for Apple products because Apple has hundreds of millions of users, and these users choose Apple's platform because there are good applications there. program.Apple's other monopoly strengths are overshadowed by the flashy logo, but other strengths make the brand's strengths shine and strengthen Apple's monopoly on the market.

There are also great hidden dangers if we operate from the brand first rather than relying on strength.Since Marissa Mayer became CEO of Yahoo in mid-2012, she has been trying to revive the once-popular Internet giant.In a tweet, Yahoo summed up Mayer’s chain plan: “People come before products, products come before transactions, and transactions come before benefits.” You know, Yahoo not only shows this concept by changing its corporate logo, but also acquires popular start-ups like Tumblr (Tumblr, the largest light blogging site in the world and the ancestor of light blogging sites) to show that I am still full of vigor.At the same time, Mayer's personal star power also attracted media attention for Yahoo.But there was one big question: What exactly was Yahoo trying to create?When Jobs returned to Apple, he didn't just make Apple a cool place to work, he cut the production line and focused on only a few opportunities for a 10x improvement.No tech company can grow on brand alone.

How to create a monopoly

The combination of brand, scale, network effects, and technology can create a monopoly, but making it work requires careful market selection and careful scaling.

Occupy a small market

Every startup starts small, and every monopoly dominates its market, so every startup should start in a very small market.It's better to be too small than too big for a simple reason: It's much easier to dominate a small market than a large one.If you think the market you're starting in might be too big, it must be.

Starting small doesn't mean finding a market that doesn't exist, and we made that mistake early on in PayPal.Our first product made it possible for people to transact on a handheld computer, which was an interesting technology that no one had done before.But the millions of handheld users around the world aren't concentrated in one particular place, they have little in common, and they use them only occasionally.Nobody needs our product, so we have no customers.

With this lesson learned, we set our sights on eBay's auction transactions and achieved our first success.At the end of 1999, eBay had thousands of "super sellers", and after only 3 months of dedicated efforts, our products had been used by 25% of them.It's easier to win over the thousands of people who really need our product than trying to get the attention of millions of people in the diaspora.

The perfect target market for a start-up is a specific small group of people with very few other competitors competing with you.Any big market is a bad choice, and a big market that already has other competitors is even worse.This is why entrepreneurs trying to capture 1000% of a $1 billion market will never work.In fact, in a large market, either you cannot find a good starting point, or you will fall into competition, so it is difficult to reach that 1%.If you get away with getting a small foothold, you should be happy to keep it going: the cutthroat competition will eat up all your profits.

Scale up
Once you've successfully created or dominated a niche market, gradually break into slightly larger related markets.Take Amazon, for example. Jeff Bezos' vision is to make Amazon the juggernaut of online retailing, but he's careful to start with books.Although there are countless books to register, the books are all the same shape, ship well, and some hard-to-sell titles will attract enthusiastic customers (and no retail bookstore will take advantage of this. These books are kept).Amazon offers a great place for those who live far from a bookstore or who need to find rare books.After that, Amazon has two options: increase the number of readers, or expand to similar markets.They chose the latter, and started with the closest CD, video, and software markets, then continued to add variety until they became a world-class "general store."The name Amazon, derived from the largest river basin in the world, the Amazon, subtly hints at the company's expansion strategy.The biodiversity of the Amazon rainforest, which grows in the Amazon River Basin, also reflects Amazon's first goal - to provide all the books in the world.And now, it is to provide all the things in this world.

eBay also started by dominating a small niche market.When it made its foray into the auction market in 1995, it didn't need the whole world to embrace it right away; because it sold well for an interested customer base, as in the case of Beanies (a type of toy) that once appeared hot.Having monopolized the trade in baby beanies, eBay didn't jump straight to sports cars or industrial second-hand, and continued to cater to small collectors until it became the most trusted online marketplace for anything.

Sometimes there are hidden obstacles in the way of expansion -- a lesson eBay has learned in recent years.Like all marketplaces, auction houses are subject to natural monopoly, as buyers go where there are more sellers and sellers go where there are more buyers.But eBay has found that the auction model works best for individual unique items, such as coins and stamps, and not so much for everyday items: People don't want to bid on pencils or paper towels, and it's more convenient to buy them from Amazon. eBay is still a valuable monopoly, it just didn't live up to expectations in 2004.

Entrepreneurs often underestimate the significance of gradually developing the market. In fact, the market needs to be gradually expanded in a disciplined manner.The most successful companies first dominate a specific niche market and then expand into similar markets. Their entrepreneurial stories are similar, and they all gradually expand from the core business.

don't spoil

Silicon Valley is obsessed with "disruption." "Destruction" means that a company can use technological innovation to launch a low-end product at a low price, and then gradually improve the product, eventually replacing the high-quality products produced by existing companies with old technology.The advent of the personal computer disrupted the market for mainframe computers, at first obscure, then dominant.Likewise, today's mobile devices may be "disrupting" the PC market.

But "disruption" has recently been misinterpreted as a buzzword for complacency about so-called new things, new trends.This seemingly insignificant buzzword is actually very influential. It distorts the entrepreneur's self-perception with its inherent competitiveness.While the concept is used to describe threats to incumbent companies, startups are obsessed with this kind of "disruption," meaning they see themselves through the eyes of established corporations.If you think of yourself as an insurgent against the forces of darkness, it's easy to focus too much on the obstacles in your path.But if you really want to create something new, create it, the act of innovation is far more important than the old industry not liking your innovation.Indeed, your company is neither new nor a monopoly if it can be classified as an enemy of an established company.

Destruction also attracts attention: the vandal seeks trouble, and eventually gets into trouble.Kids who disrupt are taken to the principal's office, and disruptive businesses often choose to fight the battles they can't win.Napster is one such business: its name is a nuisance.On what can one "nap"?music?child?Probably nothing else.Sean Fanning and Sean Parker were the young founders of Napster at the time, and they were a threat to the mighty record industry of 1999.The next year, they were on the cover of Time Magazine.And just a year and a half later, they ended up in bankruptcy court.

PayPal can also be seen as disruptive, but we don't want to challenge any of the big competitors directly.It's true that the popularity of our product has taken away some of Visa's business -- you might choose to use PayPal to buy things online instead of using Visa cards to buy things in stores, but since we expanded and covered the entire payments market, We gave Visa more business opportunities.The industry as a whole gets a positive effect, unlike the negative-sum competition between Napster and the U.S. record industry.So if you're going to expand into an adjacent market, don't "sabotage" it, dodge as much competition as possible.

later comers

You've probably heard of "first-mover advantage": If you're first to market, you can claim a sizable market share all by yourself while other competitors are struggling to get started.But being one step ahead is a strategy, not a goal.What really counts is generating cash flow in the future, so if someone else comes along and replaces you, you're not going to get any benefit from being the first, it's better to be the last to do it - eventually Make significant progress in a specific market and obtain monopoly profits for years or even decades.To achieve this goal, you must first dominate a small niche market and expand on this basis until you reach your envisioned long-term goals.In this respect at least, doing business is like playing chess.Chess master Capablanca said: "To win, the first job is to study the endgame."

(End of this chapter)