Chapter Five- Last Mover Advantage 

In this chapter, Theil speaks about great businesses and their abilities to generate cash flow. He says, “A great business is defined by its ability to generate cash flow in the future”. Startups in innovative markets are more likely to have monopolies, their good days are still ahead of them, so even if they lose money, it may be more valuable than the established company that turned a profit last year.

A company with large cash flows far into the future/ monopolies, usually have a combination of proprietary technology, network effects, economies of scale and branding.

  • Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate.
  • Network effects make a product more useful as more people use it. For example, the more friends you have on Facebook, the more valuable Facebook becomes to you.
  • A company has a monopoly on its own brand, so creating a strong brand is a powerful way to claim a monopoly. If a brand is a little more than a cool name, it’s possible for its products to become a temporary trend, and it won’t have any staying power.
  • A monopoly business gets stronger as it gets bigger. The fixed cost of creating a product can be spread over even greater opportunities of scale. A good start up should have the potential for great scale built into its first design.


Brand, scale, network effects, and technology in some combination define a monopoly. But to get them to work you need to choose your market carefully. The trick is to start small, find your niche and scale up. Your strategy is important, you have to consider the end game in order to succeed.