A medieval fortress had a moat that protected it from invasion. What protects your startup from the competition? There are a few kinds of moats that a startup can deploy.
- The technology moat. A patented, or hard to develop technology that prevents low funded startups from competing against you. Most SaaS startups don’t have a technology moat (even though they may be very proud of the code they wrote).
- The Complexity moat: if you offer a highly complex solution, it’s not easy to copy, even if it is “low tech”. Think about sprawling eco-systems like Wix, which offers a website builder, eCommerce solutions, domain registration, an app marketplace and a dozen other services.
- The Critical market share moat. For collaboration software, a large number of customers can be a moat, think zoom or Jira. Once a few people in the organization start using these products, it’s very hard to replace them.
- The brand moat. More so in the B2C space, a very strong brand can create incredible loyalty and pricing power. But this is not only true for the likes of CocaCola and Apple; many B2B companies are protected by a large investment in brand marketing. IBM was the accolade of B2B brand marketing for decades. These days companies like Stripe enjoy marketplace leadership due to a strong brand.
- The User Experience moat. The most elusive, yet often highly powerful moat is the ability to create a great user experience. User experience is not easily copied because one must have a deep understanding of the end-user to be able to get it right. In other words, it’s not something that one can simply allocate funds towards creating. Great user experience creates great customer love and loyalty. This is especially true if you can create a great user experience in an industry that is known for having a terrible reputation.
A solid startup will strive to build more than one moat. What moats are you building ?
