CREATING a Problem Artificially, Then Offering the ONLY Solution = Monopoly

[This post was originally published on my self-hosted blog on June 27, 2016 at 6:40 am. Migrated to Medium on Jan 6, 2020.]

Yesterday I bought Peter Thiel’s book Zero to One per my friend’s (strong) recommendation. Thiel certainly spews a lot of cool insights in it, and one of his most interesting points from what I’ve read so far is this:

The only true way to succeed as a business is to achieve monopoly (contrary to basic economics, which states that the ideal situation for any business is absolute competition/equilibrium).

This goes along very well with my recent HUGE (re-)realization that the only way a startup can succeed is by SOLVING PROBLEMS for people (which led to my “3 F’s of Entrepreneurship”: Fucking solve Fucking problems Fucking fast). It’s such a simple concept and one that’s been repeated in basically every single book there is about entrepreneurship, but not really relevant until you come to the realization by yourself organically from experience (at least for me — this hit me so hard).

Anyways, this concept basically implies that if you’re offering a solution to a problem most people don’t have, then no one’s going to buy your stuff and you’re going to fail. So then to succeed, it all comes down to finding those problems that people do have and experience every day, right?

99% of the time yes, but sometimes, you can actually artificially create a problem in the form of informing/educating/spooking people or amplifying an already existing small problem by bringing it to light. A really good example of this is DuckDuckGo, a search engine that labels itself as the “most private, untracked” search engine out there. Are they solving a problem? Yes, for a handful of paranoid people who worry about the government potentially spying on them or Google selling their data — but that’s simply not enough people.

So what did DDG do? They launched big online campaigns that drew attention to what Google is doing and how much of your personal information is stolen just from searching the web (check one out here). Then they aimed these spooky campaigns directly at “normal people” — the general population that doesn’t worry about government spying or even knows that Google makes money by targeting ads at them. And boy did it work. Press outlets picked it up, forums picked it up (think it did especially well on reddit), and shocked (now-paranoid) people shared it to all their friends. At the end of the process, DDG had turned a completely non-potential target demographic into their immediate target demographic simply by educating, informing, and reminding.

Then the second half of this strategy kicked in. Now that they’d artificially created this problem for non-assuming people (they didn’t have a problem with using Google before, but now, “shit, I don’t want to anymore since I don’t want to be tracked”), they posed themselves as the only SOLUTION to this just-created problem. Circling back to Thiel’s point, they effectively created a monopoly in the scope of this particular problem. At this point, those initially unassuming people have now become customers. What can they do? They just realized that they had a big problem, and this company has the only way to solve that problem. So they use/buy it, and at this point they find themselves having gone from being in the completely non-potential target demographic to an immediate demographic to an actual customer.

So that was an example of someone informing or educating people to turn them into customers. Are there other ways as well?

Sure! Scaring is a tactic (often via manipulation or lies, but not always) that could definitely be used to create a problem that doesn’t exist and ultimately sell things. A quick example of would be if someone (let’s call him Joe) were to sell water purifiers in New York City. On top of already existing competition (dozens of similar products with similar prices and features — basically, this business has reached market equilibrium), it doesn’t help that New York has a big reputation for having clean tap water, meaning the target demographic is even more limited. In this situation, most businessmen would simply market a unique feature of their own water purifier that differentiates it from all the other ones. Maybe it’s got a new filtration technology in it or maybe it’s just cheaper than the rest. Whatever the case, they’ll probably have a hard time competing for business against so many other players and eventually give up, just to have another new player with a different unique feature come in to fill their spot.

But Joe is not an average businessman — he understands the huge fact that you need to solve big problems to succeed big. On top of that, he realizes that if the solutions are saturated, you can create new problems for yourself to solve with your product. So he starts to spread rumors that there’s a new type of bacteria called f.coli that lives in the New York water system, and that his water filter is the only one on the market that can filter f.coli out! He even backs his claims with scientific journals, further spreading the scare, and eventually he’s able to sell each unit for 500% above the market price for water filters and become a millionaire. In the end, Joe was able to stand out and pull all this off (albeit pretty unethically) just because of one simple truth/realization: The bigger the problem you’re solving and the faster you’re solving it, the more you will profit. And if there isn’t a problem, you can technically create one to solve yourself.

I guess one could argue that this whole concept of creating problems and making people realize that they have a problem is basically advertising. Ads first INFORM/EDUCATE/REMIND/SCARE, then SELL their product as the only or best solution.