in Business. You do not want to be the first-mover. You want to be the LAST-mover

The video

[...] So even if the market starts small, you can grow your business quickly enough to stay at the same size as the growing market and maintain the monopoly of power. Now the critical thing about these monopolies is it's not enough to have a monopoly for just a moment. The critical thing is have one that lasts over time and so in Silicon Valley there is always this sort of idea that you want to be the first mover and I always think in some ways the better framing is you want to be the last mover. You want to be one of the last companies in that category, those are the ones that are really valid. Microsoft was the last operating system, at least for many decades. Google was the last search engine. Facebook will be valuable if it turns out to be the last of social networking site.

And one way to think of this last mover value is this idea that most of the value in these companies exists far in the future. If you do a discounted cash flow analysis of the business, you'll look at all these profit streams, you have a growth rate, the growth rate’s much higher that the discount rate and so most of the value exists far in the future. I did this exercise at Pay Pal in March of 2001 we'd been in business for about twenty seven months and the growth rate was a hundred percent a year, we were discounting future cash flows by thirty percent, and it turned out that about three quarters of the value of the business as of 2001 came from cash flows in years 2011 and beyond.

And whenever you do the math on any of these tech companies, you get to an answer that is something like that. So if you are trying to analyze any of the tech companies in Silicon Valley, AirBnB, Twitter, Facebook, any emerging Internet companies, all the ones in Y Combinator, the math tells you that three quarters, eighty-five percent of the value is coming from cash flows in years 2024 and beyond. It's very far in the future and so one of the things that we always over value in Silicon Valley is growth rates and we undervalue durability.
More: http://startupclass.samaltman.com/courses/lec05/