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Building value

Peter Thiel has an excellent lineage for creating value through innovative company's. He co-founded Pay Pal, was the first outside investor in Facebook, and started Palantir Technologies - a big data analytics company valued at $20 billion.

In his book "Zero to One", Thiel classifies value as the sum of the money a business will make in the future. The ability a business has to reach that intended value lies in its ability to dominate the market it operates in.

Thiel suggests four different types of areas to measure your company against when seeking that potential:

1. Proprietory Technology

Proprietory technology is the heart, but not all, of the innovation that sets a company apart. Thiel suggests that the company's technology must enable the company to perform an essential aspect of the offering at least ten times better than the alternative.

2. Network Effects

Network effects are an offering's ability to appeal to a defined market strongly. The principle is that the offering gains strength as more people use/buy the offering. An example of this is a typical market like Apple's app store.

3. Economies of Scale

Profitable businesses should build a limited fixed cost that does not increase at the same rate as growth.

4. Brand

A brand is a promise from a company on its ability to deliver a product or service. For a brand to be valuable, the promise must stand out when compared against the market competition.

Businesses can build value through various paths, but a company on route to building good future value will display all four of these characteristics.


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