What Goes Into Creating An Amazing Company: Building A Moat (7/9)

Over the years, I have developed a working model of what goes behind creating an amazing company. As I look to build my 3rd venture - ithinkyouare - the world's 'compliment' app - I thought this might be a good opportunity to publish these ideas

In case these strike a chord with you, or you think of someone with whom they will - the misfits, the rebels, the round pegs in square holes - I am also building the initial team of pirates for ithinkyouare - so do get in touch with me

Once You Do Well, You Will Attract Attention

Inevitably if you create something great (with original, independent thinking), other companies will want to follow suit

Some of these might be gigantic corporations with bottomless pockets and millions of existing (captive) users

So, if you want to build a great company that stands the test of time, think about your moats, from the very beginning

The Best Moats: Sustainable, Difficult-To-Replicate Advantages

The best moats use your natural, uncommon advantages, that are inherently difficult to copy

As always, let's look at some examples

How Apple & Others Built Big Moats

Apple: Apple has a couple of big moats. One is its brand image as a maker of products that just work, can be bought blindly, and are usually the best in their category (this image was of course created over decades, by actually making such products). You might pay a premium for Apple products, but at least you don't have to do research and decision-making, you can just trust Apple to have made a great product. In a world with such a limited attention span, people don't have the mental bandwidth to do extensive, objective research. Blind trust in a brand, in such circumstances, is an extraordinary leverage

Apple's other big moat is its ecosystem, strategically built over decades, including the iPhone, iPad, Mac, App Store, and services. Customers who buy one Apple product are often inclined to buy others, and the high-quality, integrated user experience makes switching to competitors less appealing

Amazon: With its vast, super-efficient, economies-of-scale distribution network (and the consequent competitive prices for the end-consumer), the Prime membership loyalty program (which also smartly combines video and music services), and a powerful brand associated with great customer support, Amazon checks all the boxes that make it the go-to online retailer in virtually all the markets it operates in. For new incomers in the e-commerce market, this is a huge gap to even attempt to cover

Facebook (Meta Platforms): Facebook was itself built on extraordinary network effects. As more people used it, it became more valuable for its users. That advantage lasted for years. But the really, really smart thing Zuckerberg did was to recognize threatening competitors with equally powerful network effects (Instagram and Whatsapp), and then acquire them early. The result: Meta has now completely dominated the social network domain for many years

Coca-Cola: Coca-Cola is one of the most powerful, and longest-surviving brands in the world. The secret formula taste, the gigantic, consistent marketing overlay (over multiple decades), and the extraordinary global distribution network (again built over decades, and allowing it to serve all markets from dense cities to remote villages) make it very difficult for competitors to pull market share

What Kinds Of Moat Can You Build

The above examples hint at the kinds of moat a company can build:

Brand: In a world where people's brains are already saturated by too much choice, and too many ads, and attention span has become such as scarce commodity, more and more consumer purchases are today based on faith-in-the-brand, instead of objective decision-making. Brands were always powerful, but today they are even more so. It takes time to build a brand (reputation), but the return on that is greater than ever

Network Effects: If the more people use your product, the more valuable it becomes to new users, you have created for yourself a powerful virtuous loop. It becomes a snowball rolling down a snow hill and becoming bigger and bigger as it covers more distance

Economies Of Scale: If serving a large volume of users allows you to reduce your cost-to-serve per user, you can create both a powerful brand and a powerful pricing position, which will be hard for new entrants to match

High Switching Costs: If you have a product that creates habits for users, it can have a very lasting sticky effect. Habits are hard to break once formed

Culture: Perhaps a less recognized, but arguably the most important, long-lasting moat of all is Culture. Times change, conditions change, technologies change and CEOs change. But if the founding leadership in an organization is able to institute a lasting culture of powerful values (the sort of things we have discussed from Part 1 to Part 6 of this series - from being user-centric to thinking long-term), that gives the organization legs to survive decades and centuries

So go ahead and build something great, but if you want it to last, if you want it to be amazing, think about your moats from Day 1