A lot of discussion on startup and business strategy ultimately comes down to one single piece of advice.
“Build a moat”.
Yes, increasing margins is important. Yes, solving distribution is critical. But before you do all that, you need to build a “moat”.
What’s a moat? Like medieval castles, a moat for your business protects you from competitors and substitutes. It gives you market power, so you can focus on growth, profitability, and all the good stuff.
For many investors, it is the most important thing.
Take Warren Buffett, for example.
As as the VC firm Andreessen Horowitz says, in Moats Before (Gross) Margins:
Yes, gross margins are important. But over-rotating on gross margins is myopic because business quality is driven by more than margins.
Business quality is about defensibility. Defensibility comes from moats.
Now, there are a few standard types of moats in business. If you look at the most successful companies, you invariably see some (or all) of them.
Regulations. Technology / IP. Brand. Economies of Scale. Network Effects.
Jerry Neumann has categorized them very well, in A taxonomy of moats:
But what if you have none of these moats yet?
Turns out, you can generate a moat out of thin air, by simply being fast. By hustling.
Yes, speed can be a lasting competitive advantage.
In fact, as per Elon Musk, it may be THE lasting competitive advantage.
Says the man who’s started four multi-billion dollar companies:
The most important sustainable competitive advantage is fostering an organizational culture that supports a higher pace of innovation.
And if you want something more tweetable:
The fastest company in any market will win. That’s why companies need to make speed a habit.
Dave McClure of 500 Startups has a great presentation, on speed as the primary business strategy
The presentation has some great examples of companies that succeeded with relentless focus on speed.
- Stylus Innovation – $13M exit in two years.
- Direct Hit – $500M exit in 500 days.
- Xfire – $110M in 2 years.
The presentation also has some concrete tips on how you can be faster. Whether it’s fundraising, hiring, employee onboarding, or business development, you can be much faster.[As you think of ways to speed up, it also helps to remember, your Minimum Viable Product can be more minimum than you think.]
We’re running at top speed here. Can’t go any faster!
Sometimes, you think it’s impossible for your organization to be any faster than it already is. If you go any faster, you’re sure things will break.
At such times, check out Patrick Collison’s list of examples of unbelievable speed. It’s called… Fast.
Some examples from the article:
- The Eiffel Tower was built in 793 days.
- On August 9 1968, NASA decided that Apollo 8 should go to the moon. It launched on December 21 1968, 134 days later.
- The iPod shipped within 290 days of getting started.
- Amazon started to implement the first version of Amazon Prime in late 2004. It went live on February 2 2005, six weeks later (!).
To be fair, when it comes to speed, Amazon SMOKES every other company.
Speed is a competitive advantage in your career too.
As James Somers says in Speed matters: Why working quickly is more important than it seems;
Systems which eat items quickly are fed more items.
Slow systems starve.
This is true at a simple level, of course.
The faster you do things, the more things you can do. The more intelligent bets you can place. And so, the more you can win.
But it’s also a superpower that makes you indispensable. The more things you take on, the more critical you become to your organization.
PS. I will add more examples and actionable tactics to this post soon.
PPS. Speaking of unlikely moats, sometimes, good old focus can be a competitive advantage too.
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