From my notes for the book 0 to 1: "Competition is destructive and not a sign of value".
For your alpha, look for secrets (things you know or are confident in, but no one else is). Create something that is 10x better than any alternative. Don't start the next restaurant. You want to be the next monopoly.
Not the focus of that book, but personally, I would also like to create value, not only capture it. So I'd aim not to start the next Elsevier, Coca-Cola, or Facebook, even though they have great profit margins. There are good and bad monopolies.
Interesting post. I think there is a large distinction between "vc backable" startups and the rest (sushi restaurants, tire shops). Successful startups ride an exponential technological, regulatory or social trend and create massive amounts of value very quickly, reaching massive markets that would otherwise be underserved. (most also fail). Here's a great essay by Paul Graham https://www.paulgraham.com/growth.html
I disagree with consumers only being "mildly priviledged by competition" because the alternative would be monopoly or oligopoly and arbitrary pricing power by incumbents (there's a reason why antitrust suits happen all the time). Deel v Rippling is an almost comically bad situation, but prices are almost certainly lower and pressure to create a better product far higher than in a counterfactual world where Deel did not exist. As another example, consider Delve, Scytale and the other automated compliance providers following Vanta. Delve costs half as much and certifies SOC 2 twice as fast. Scytale provides other features, like providing in house auditors instead of just referrals. No two companies are exactly alike, and a company usually earns the right to exist by being different in a crucial way (different vertical, different pricing, different features, different secret etc)
Suppose Fred opens up a car repair shop in a city which has none already. He offers to fix the vehicles of Whoville and repair them for money; being the first to offer the service to the town, he has lots of happy customers.
In an abstract sense Fred is making money by creating lots of value (for people that need their cars fixed), and then capturing some fraction of that value. The BATNA of the customers Fred services was previously to drive around with broken cars, or buy new ones. As a result of his efforts, Whoville as a town can literally afford to spend less time building or purchasing cars.
But then let's say Tom sees how well Fred is doing, and opens up an identical car repair business ~1 mile closer to the city center. Suddenly most of Fred's customers, who use a simple distance algorithm to determine which car repair business to frequent, go to Tom.
Now, Tom has certainly provided his customers a bit of value, because it is nicer to be closer to the city center. But the value he's providing isn't nearly enough to account for all of the money he's now making. Mostly, Tom has just engineered a situation where customers that previously went to Fred's business now patronize his.
In fact, if there were fixed costs involved in building the shop that exceeded the value of the shorter travel distance, society as a whole might literally be net-poorer as a result of Tom's efforts. This is all true in spite of the fact that the business itself has no negative externalities and appears productive to external observers. Tom's business once created is a productive one, but the decision to start a new business was rent-seeking behavior.
Most new businesses tend to be extractive in this sense. That's because it's much easier to make a slightly more enticing offer than your competitors, than it is to innovate so much that you can pay yourself from the surplus. Consider:
In all of the above cases, the businesses aren't extracting money from the consumer, who is either unaffected or mildly privileged by the competition. But they're not creating value either. They're just pulling money from other entrepreneurs & shareholders of already-existing competitors.
Most businesses are like this, but not all. Consider:
The largest technology companies tend to be obviously not rent-seeking in retrospect, partly because their market caps are so high that they literally could not have pulled money any other way.