Escape Velocity

REID HOFFMAN:
If you want your company to scale, your goal is not to beat the competition. Your goal is to break free of the competition entirely.

In an ideal world, you do this by going where the competition isn't. You invent your own game and master it. But to be clear, this is more of an aspiration than a feasible goal. At best, you'll get a grace period – a fleeting moment when no one believes in your idea. And as soon as your idea takes off, watch your back. Before long, you'll find yourself where most businesses start: facing competition. Your goal? To break free.

And to do this, you'll need to move fast. Explosively fast. You have to achieve escape velocity – the speed at which you leave all possible contenders lightyears behind. Because even one close competitor is one too many.

In Silicon Valley, competition can be downright lethal. Think all of the late '90s search engines. Remember AskJeeves? HotBot? Infoseek? Direct Hit? Then Google comes along, and it was like, "Nope, that's it. No soup for you."

And that's just the nature of the game. The stakes are neatly summed-up by my favorite line from the movie Glengarry Glen Ross: "First prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize is you're fired." Except in Silicon Valley, it's usually first prize is the whole Cadillac dealership, second prize is you're a footnote in history.

Suppose you've hit escape velocity. User growth compounds by the day. Investors back you in round upon round of financing. You've mastered a game of your own making.

Now, the pressure is on not just to gain a competitive edge, but to escape the competition entirely. The very same force that enabled you to secure huge sums of capital will compel you to spend at an alarming rate. If you want to break free of your competitors, get ready to burn money.

Let me give you an example from my years at PayPal, with Peter Thiel. We spent upwards of $10 million dollars a month. You might think that making sure your business has a steady stream of cash should be the priority. But when you face intense competition, you often have to spend to leave your competition far behind. And you might have to spend a lot.

Plenty of wildly successful businesses defer profitability for years. Amazon chugged along for roughly two decades, ignoring the occasional gripes from Wall Street that their whole operation seemed to be a money pit. In fact, they were breaking free of their competition in one retail sector after the next.

You'd think just as PayPal was hitting its stride, we'd also rest easy. I wish. At no point did we say to ourselves: "Relax, Peter. We've hit escape velocity. Sign that $10 million check already." In fact, we worried without end.

Our concern was grounded in a humbling truth: escape velocity is not a fixed speed. It's always and forever relative to your competitors. Your fastest competitor determines how hard you hit the gas.