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Start small to gain an edge

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in Best-Practices Leadership,Leaders & Managers

To build a business, start small. Lead your team to dominate a tiny segment of the market, and use that as a springboard to grow.

When Peter Thiel co-founded PayPal in 1998, he initially sought to enter a huge worldwide market. That didn’t go so well.

PayPal’s first product required the use of PalmPilots, which at the time were a global phenomenon. Millions of people around the world were hooked to their PalmPilots.

Even though PayPal’s technology enabled PalmPilot users to beam money to each other, the product didn’t catch on. That’s because Thiel and his team realized too late that they were pursuing a large, loosely knit market of customers with little in common.

PayPal then narrowed its strategic focus. By late 1999, the company tailored its product to meet the needs of a few thousand consumers who participated aggressively in eBay auctions. These so-called “PowerSellers” flocked to PayPal.

Thiel, 47, concludes that leaders who target a small group of people who are easy to identify—and who are underserved by existing products or services—can thrive.

Guided by that strategy, PayPal never aimed to take on a big competitor head-to-head. Instead, it believed that its technology could enlarge the entire market.

By expanding the overall market for electronic payments, PayPal created new business opportunities for Visa and other global credit card companies. Even though PayPal’s service induced some shoppers to make online purchases rather than use their Visa card in a brick-and-mortar store, the net result was positive for Visa as it introduced e-payment ­services.

— Adapted from Zero to One, Peter Thiel and Blake Masters, Crown Business.

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