By Sonam Srivastava
The future of investing in India will be highly linked to the growth of new-economy industries. In 2022, I would like to see more new-age companies come into the public markets, but as an investor, I don’t want to chase the new-age theme blindly. Therefore, the most critical part of my job would be choosing the right innovator to bet on. To navigate the path of selecting disruptors in the new age, I would bank on Peter Thiel’s book Zero to One as an inspiration and apply the takeaways to the idea of investing. Here are the three lessons from Peter’s masterpiece that will help me in my tryst to find disruptive innovators:
1. First, the most significant leaps in progress are vertical, not horizontal.
If you take one typewriter and build 100, you have made horizontal progress. You have made vertical progress if you have a typewriter and build a word processor. According to Peter, technological innovation leads to a 0 to 1 growth, while creating better copies of an existing product leads to more competition.
This is a valuable lesson to learn as we approach new-age stocks. Fintech is more attractive than a Bank because Fintech brings in zero-to-one innovation in terms of ease of access, transparency, and security while making transactions and then brings along a wealth of value-added services in terms of credit, wealth management, banking, etc. Understanding the zero-to-one mindset is critical in understanding the value of technology innovators transforming the markets.
2. Second, monopolies are good for both business and society.
Peter Thiel says that zero-to-one business ideas aim for a monopoly, creating something different from what exists already. One must strive to build a company that is one-of-a-kind. It should be of a concept different enough not to gain competitors. Looking for monopolies is critical when picking among the new age businesses. And how do you build a monopoly, according to Peter?
- Proprietary technology – building ten times better than any existing solution, as Twitter did in comparison to traditional publishing companies.
- Starting by dominating a small hyper-niche market, like Google dominated the search market.
- After dominating the niche in books, the economy of scale, Amazon dominated other e-commerce areas.
- Branding is important. Apple’s branding is a continuing example of it.
The point about monopolies is critical while picking among the new-age companies. For example, Paytm had a destructive entry into the public market because while people understand the importance of payment apps, Paytm is now drowned in competition and does not demand a monopoly. Whereas a company like Policybazaar is still attractive even though it is not profitable, unlike Paytm, it has a monopoly in the insure-tech space.
3. Founders need the vision to take their business from zero to one.
The first piece of a company’s solid foundation is the people who work for it. Hence, finding the right people is integral to the company’s success. As new-age companies start small, the actions of each individual are even more critical. A strong culture is crucial, and strong company cultures help employees feel like they are part of something greater. Plus, strong company cultures can improve the efficiency with which the company’s teams work together.
This lesson is also apparent in the growth trajectory of the newly listed companies. Falguni Nayar of Nykaa is a seasoned businesswoman who has built a strong brand that is also profitable and scaling. The same goes for IPOs like Happiest Minds and MapmyIndia. In other cases where the promoter interests are not well aligned or not represented well to the public, the company suffers primarily because of them.
Peter Thiel’s book has many other important lessons about competition, mindset, team building, and scaling in today’s highly competitive market. While he talks about startups, I think it is critical to use its lessons while investing in new-age companies because many of these new-age firms were startups a few years back. I am excited by the new entrants in the Indian economy and see enormous potential. But profit will not come by blindly investing in new-age companies, and we need to take the essential lessons out of Peter Thiel’s book while picking the winners.
(The author Sonam Srivastava manages Innovation Theme at investment platform smallcase, and is Founder, Wright Research. The views expressed are the author’s own. Please consult your financial advisor before investing.)