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Boldness as a Business Moat, What to Do if Your Startup Stops Growing - Tactician: #00104

Boldness as a Business Moat

Author

Alexander Lowell Small
April 23, 2024

A business moat?

That’s when you’re so good at what you do, you can just sit back and watch your competitors try to swim across.

'Y’all need floaties? We sell those too.'

 Boldness as a Business Moat

Why Read:

  • Understand the importance of building a strong moat and how a bold vision can serve as a powerful moat in the early days.

Featuring:

Key Concepts and Tactics:

  • Understanding the Importance of a Moat:

    • Point: Recognize that a moat is a startup's ability to maintain an advantage over competitors and is crucial for success.

      • "A moat is your startup's ability to maintain an advantage over your competitors, and investors love to talk about it. It is one of the most important things a founder should get across when pitching."

      • "Peter Thiel agrees. He says startups without a moat are companies that can create a lot of value yet still be worth very little."

  • Identifying the Need for Strong Moats:

    • Point: Understand that the best ideas require strong moats to maintain their advantage and grow quickly.

      • "Packy McCormick argues that the most successful companies are the ones who desperately need moats."

      • "His reasoning is simple: good ideas get noticed… quickly. And the best ideas need strong moats to maintain their advantage and grow fast enough to become dominant."

  • Defining a Moat:

    • Point: Recognize that moats are a set of characteristics that make it hard for other companies to compete.

      • "Moats are a set of characteristics (competitive advantages) a company has that make it hard for other companies to compete."

      • "In practical terms, I think about this by answering the question, what can't a company with $1B sitting in the bank just buy? The answer? Many things: Community, Trust, Network Effects, Users, etc."

  • Acknowledging the Diminishing Defensibility of Tech:

    • Point: Understand that technology alone is becoming a weaker moat for startups.

      • "In the past, tech was considered a strong moat since it required large amounts of capital to be built. But the truth is, the level of defensibility provided by tech to startups is at an all-time low and decreasing faster than ever before."

      • "With AI Tech will become an even weaker moat. Code will start to become a commodity."

  • Building a Moat Through Bold Statements:

    • Point: Recognize that generational companies are built on bold statements rather than the latest technologies.

      • "Generational companies are not built on the latest technologies but in bold statements."

      • "If you want to convince investors on MOAT of your startup. Just ask one question to yourself. 'Why am I being asked this? What was Airbnb, Spotify, or any other successful company's moat when they just were getting started? In their origins, what did they have that nobody else had?' It is just one thing. 'A bold statement on how the world should look like.'"

  • Learning from Spotify's Example:

    • Point: Understand how Spotify's moat was built on a bold vision and an unparalleled experience, not just technology.

      • "Although seen as a technological breakthrough, Spotify was more of a powerful statement and an unparalleled experience. At the time, it wasn't built with mind-boggling software. As far as tech goes, Spotify could have been created five years earlier. Spotify was a bold statement and a big bet."

      • "Daniel Ek did something genuinely bold. Although nobody was complaining about the current state of music, he dared to imagine an even better experience. Building a company in an industry where the vast majority is happy with what they currently have, requires an astonishing vision, and blinding determination. And that was Daniel's moat. Unlike tech, a vision (the act or power of imagination) or a statement cannot be bought."

      • "And that was Daniel’s moat. Unlike tech, a vision (the act or power of imagination) or a statement cannot be bought."

What to Do if Your Startup Stops Growing

Key Concepts and Tactics:

  • Acknowledging the Reasons for Stagnant Growth:

    • Point: Be honest about the reasons for slowed growth, which often relate to decreased competitiveness and falling out of product-market fit.

      • "First, be honest about why. You can blame it on macro issues if you want, but if growth has radically decelerated, it's likely because you are less competitive than you were before."

      • "You probably have fallen out of product-market fit, partially or entirely. Be honest. And go close those feature gaps, and get back to being ahead of the competition — not behind."

  • Focusing on Customer Satisfaction:

    • Point: Prioritize making existing customers happy, as they are the primary source of new customers through word-of-mouth, referrals, and other means.

      • "Second, focus on the customers you do have and making them super happy."

      • "In the end, most of your customers will come from your existing customers. Via word-of-mouth, via referrals, via blog posts, via folks taking them with you to new jobs, etc."

      • "Making your customers happier doesn't instantly accelerate growth. 'B2B virality' is usually slow. It can take 9–12 months for one paid customer to lead to another paid customer. But it does work."

  • Improving Customer Satisfaction and Net Promoter Score Metrics:

    • Point: Set goals to substantially increase CSAT (customer satisfaction) and NPS (Net Promoter Score) metrics, as they will lead to growth in the long run.

      • "When you are out of ideas to grow, move your primary focus to growing your CSAT (customer satisfaction) and NPS (Net Promoter Score) metrics up substantially. Measure them carefully, and set monthly and quarterly goals to drive them up."

      • "This will be frustrating, because you won't see the impact in just a few weeks. But you will see an impact before the year is out, if you make your customers not just happy, but much happier than they were before."

  • Focusing on Usage Metrics:

    • Point: Concentrate on increasing product usage, as it indicates the value customers are getting and can lead to increased satisfaction and word-of-mouth referrals.

      • "Third, focus on metrics besides revenue that matter, and that you can grow right now. Especially usage."

      • "If revenue growth has slowed, at least get folks using your product more. The more they use it, all things being equal, the more value they are getting. The happier they will be. And the more they'll tell their friends to try you. But if usage plateaus? That's a red flag. Even if other metrics seem OK."

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