Peter Thiel on the importance of starting with a small market

“It’s always a big mistake going after a giant market on day 1. That’s typically evidence that you haven’t defined the categories correctly, and there’s going to be too much competition.”

He continues:

“Almost all of the successful companies in Silicon Valley had some model of starting with small markets and expanding.”

Amazon started with books

eBay started with Pez dispensers and Beanie Babies

PayPal started with power-sellers on eBay

Facebook started with Harvard

“What’s very counterintuitive about many of these companies is that they often start with markets so small that most people don’t think they’re valuable at all.”

The opposite of this is companies that start out targeting really big markets, and he uses clean tech companies in 2005-2008 trying to capture a small percentage of a trillion dollar market as an example:

“Once you’re a minnow in a vast ocean, that’s not a good place to be. It means you have tons of competitors, and you don’t even know who all of the competitors are.”

As Thiel puts it:

“You want to be a one-of-a-kind company where it’s the only one in a small ecosystem… large existing markets typically mean you have tons of competition and it’s very hard to differentiate.”

Full video: Y Combinator “Competition is for Losers with Peter Thiel (How to Start a Startup 2014: 5)” (May 2014)

P.S. We’ve put together a YouTube playlist with every Peter Thiel insight we’ve ever shared. You can watch it here: “Best startup advice from Peter Thiel”