To build a huge company, start with a market too small to matter

To build an empire, begin with a tiny niche and own it first. That is the contention of Peter Thiel, the entrepreneur who ran PayPal and later laid out his approach in the book Zero to One. As Thiel puts it, "Every startup should start with a very small market."

Tiny does not mean empty. It means a tight cluster of similar customers in one place with hardly anyone else serving them. The point is to dominate that corner completely and then edge outward into nearby, slightly larger markets, one step at a time.

Apple began that way. Its first order was 50 computers for $25,000 from The Byte Shop in Palo Alto. According to Apple lore, Steve Jobs, Apple's co-founder, walked into the shop barefoot to make the sale.

Jeff Bezos, the founder of Amazon, followed the same sequence. His founding vision was to dominate online retail, but he chose to open with books alone. While working at D.E. Shaw, Bezos discussed internet businesses with David Shaw, the founder of the New York investment firm. The project that became Amazon carried the code name the everything store, with books as the deliberate entry point before adding other categories in stages. The point is to pick neighboring markets with care instead of rushing outward.

The reason for that patience is to stay clear of direct contests for as long as possible. When Thiel writes, "Competition is for losers," his counsel is to sidestep rivalry by finding an uncontested niche, not to insult competitors.

That leads to his distinction between first movers and last movers. A last mover is the company that makes the final great advance in a market and then holds that position for years. Getting there early is a useful maneuver, not the objective. Business, in this view, is like chess, and Thiel borrows the line from a grandmaster he quotes: "To succeed, you must study the end game before everything else."