How to Build a Monopoly Business
In the last post, I discussed the difference between a traditional monopoly and a creative monoply. Today, it’s all about building your own monopoly.
Building a monopoly today is not about cutting the price out from under your competition until they can’t compete.
Instead, your creative monopoly has to produce a product or service so far beyond or differentiated from anyone else that it becomes an industry on its own.
In the movie Limitless, Bradley Cooper was able to differentiate from his competition so much he no longer had anyone to challenge him.
The drug responsible for his transformation is something that an enterprising company can build a monopoly around.
Creating a new industry merging biotech and pharmaceuticals which will allow us to transcend physical and mental challenges is something that’s very possible in your lifetime.
To survive in the antitrust age, the new monopolies need to be nimble enough to change with their market, but powerful enough to create demand and fulfill the supply.
We’re going to look at the elements you need in order to create and scale a monopoly from scratch.
There are five essential elements in building a creative monopoly, a monopoly of the future. They need unique technology, social effects, economies of scale, branding, and circulation.
Unique Technology is the Backbone of a Monopoly Business
A lot of people believe in using incremental advantages to put their competition out of business, but that’s sadly untrue. More than being untrue, it’s impossible.
You can’t put the Ford Motor Company out of business because your car gets 40 miles per gallon and theirs only gets 30 miles per gallon.
Rather, you’ve set a new benchmark they’ve got to match or exceed. Something the will eventually do if given enough time.
If you want to put Ford out of business, you need to do exactly what they did. Create a new Industry.
Google is a beautiful example of creating unique technology that allowed them to outdistance their competition, establish a search engine monopoly (to the tune of 68% of the search market), and concentrate on innovation far into the future.
When you’re thinking about the idea or rather, the problem your monopoly is going to solve, consider two things:
What unique technology can I bring to the table that is at least 10x better than anything on the market?
What secrets are hidden in plain sight?
For Google, the secret was creating a much better search engine algorithm even though people were using the current ones with little to complain about.
For Facebook, it was a way for people to connect with their loved ones no matter where they are in the world.
Will your customers benefit more when their entire social circle is using your product or service?
The best examples we have of this kind of creative monopoly are the social media startups that have taken the world by storm in the 21st century.
Instagram, Twitter, Tumblr, and the Granddaddy of them all, Facebook, (Facebook controls 25% of global internet traffic right now) are just some of the examples that come to mind.
But those aren’t the only ones. PayPal only works because the person you’re sending money to also has a PayPal account.
Since the only way to send money via Paypal is to use an email address that’s been registered with the company. If your friends and family haven’t registered then you can’t benefit from using the easiest money transfer platform in the world.
In fact, the founding team was so bent of getting people to sign up in the early stages that when they were first starting out, Paypal offered every new user a $10 credit for every person they referred to the service.
This resulted in viral social growth for them and solidified their position as a long-term player in the marketplace.
I’m personally responsible for getting dozens of users to sign up with PayPal because it’s cheaper and simpler than traditional bank transfers.
Facebook did two things right when it first started, they tapped into one of the most powerful human drives, social acceptance, and they made it exclusive at the same time. Only college students on certain campuses were able to use it in the beginning.
When I was much younger, I remember opening a Facebook account was one of the many reasons I wanted to hurry up and get to college (that; the beer, and frat parties).
Economies of Scale
When more consumers make the switch to your product/service, does it become cheaper for you to produce or meet demand while allowing you to stay at the forefront of innovation?
At the turn of the century, Microsoft was a juggernaut. They produced software, something that is for all intents and purposes intangible. All they needed to do was make their famous windows OS once and they could replicate it a million times for almost nothing.
They enjoyed huge margins and once they achieved widespread acceptance, the cost per unit was something negligible.
This allowed them to focus on more and more innovation which pushed them further ahead of their competition. That is, until they were attacked by the government for antitrust violations and Bill Gates stepped down as CEO to focus on defending his company.
During this time, the competition was able to close the innovation gap and reemerge as a definite player in the computer OS space.
Information products or SaaS (software as a service) are the best businesses for taking advantage of this, but you can get creative and apply it to many other industries.
Have you developed a strong brand that conveys your promise to your consumers?
The one thing you have an automatic monopoly on when your creative monopoly is in its infancy is your company name brand.
There are two paths you can take, you can reinforce the power of your brand or you can allow it to take on a life of its own.
The second option is never a good one.
An example of one of the strongest tech brands on the world is Apple. Over the years, they’ve been able to develop a powerful brand built not only on the beautiful minimalists designs of its products but on an entire network of unique technologies.
They have their own OS, branded stores, and an Itunes library to name a few.
To be honest, these are just scratching the surface. They’ve invested billions into controlling the entire user experience and distribution channels.
Unique touchscreen technology, proprietary software, and they buy at such a large scale they can dictate demands to their manufacturers rather than the other way around.
In order to build a powerful brand, you need to be able to control as much of the user experience as possible.
Apple does it by controlling most of its distribution from raw material to end user.
As a creative monopoly, you need to clearly define your brand and set certain quality standards within your organization.
We know exactly what to expect when buying a coke, a pair of Nike running shoes, and a Louis Vuitton bag.
Have you defined what your consumers should expect when they’re using your product/service? If not, the experience will be sub par at best and misaligned in the most extreme cases.
It’s kind of like creating an ad that sends a user to a landing page with different colors and a completely unrelated message.
Sales and Distribution
Do you have a way to get your product in the hands of the end user?
This is probably the most overlooked aspect of a creative monopoly. Individuals believe that since their products are so far ahead of the competition, they’ll sell themselves.
Although viral growth and distribution are in fact possible, it’s the exception not the rule. A strong system of distribution and an even stronger sales team are pivotal for your success.
IBM is legendary for pumping out amazing sales reps and unifying their distribution networks.
Standard Oil was the enemy of a generation but they had a distribution most companies can only dream of. It was on the back of this system that they were able to corner an entire market.
It’s so important in fact that I’ll treat it separately in another post.
Economies of Scale
These are the five elements each and every creative monopoly has in common. It is what makes it possible for them to thrive in what would otherwise be a crowded marketplace.
You job is to ask yourself the questions I outlined the beginning of every section and come up with meaningful answers.
If you can’t it’s time to go back to the drawing board and continue to work on the fundamentals of your creative monopoly.
In the next post, I’ll discuss how you can choose a niche, start small, and scale into adjacent markets to completely dominate with your creative monopoly.