Markets So Small People Don't Notice Them
Thiel: Going after a giant market on day one is always a big mistake. That's typically evidence you haven't defined the categories correctly. It normally means there's going to be too much competition.
Almost all successful companies in Silicon Valley had some model of starting with small markets and expanding. What's very counterintuitive is they often start with markets that are so small people don't think they're valuable at all.
Giant markets mean you haven't defined categories correctly. Start with markets so small nobody notices.
20,000 People. 60% in 10 Days.
Thiel: Amazon started as a bookstore — all the books in the world, better than anyone else. Then gradually expanded into e-commerce. eBay started with Pez dispensers, then beanie babies, then all sorts of auctions.
PayPal started with power sellers on eBay — about 20,000 people. We thought they were terrible customers. Just people selling junk on the internet. But we got to 25-30% market penetration in 2-3 months. Facebook's initial market was 10,000 people at Harvard. It went from 0 to 60% market share in 10 days. That was a very auspicious start.
PayPal: 25-30% of eBay sellers in 2-3 months. Facebook: 0 to 60% at Harvard in 10 days.
A Minnow in a Vast Ocean
Thiel: Every clean tech PowerPoint from 2005 to 2008 started with 'we're in the energy market — a market measured in hundreds of billions or trillions of dollars.' Once you're a minnow in a vast ocean, that's not a good place to be. You have tons of competitors and you don't even know who they all are.
You don't want to be the fourth online pet food company. The 10th thin-film solar panel company. The 100th restaurant in Palo Alto. The restaurant industry is a trillion-dollar industry — so if you do a market size analysis, restaurants are a fantastic business. They're not.
The restaurant industry is a trillion-dollar market. That doesn't make the 100th restaurant in Palo Alto a good business.