The New Moats — Slides Edition Remix!

Founders and CEOs often ask me, “How do I build a defensible business model?” Strong defensive moats around your company are required to build a sustainable and profitable business. Building these moats is a difficult challenge for today’s leaders due to dramatic platform innovations.

Earlier this year I explained why systems of intelligence™ — AI powered applications — are the next defensible business model. I recently presented this topic and shared the slides below. The deck builds on how different types of traditional economic moats are being disrupted and why intelligent applications will be the foundation for the next generation of great software companies.

We have undergone one of the largest platform shifts in a generation as applications move to the cloud, are built on open source and are fueled by AI and data. This dramatic shift makes some existing moats useless.

• Economies of Scale: The bigger you are the more operating leverage you have which lowers your costs.
• Network Effects: Best described by Metcalf’s law, your product or service has “network effects” if each additional user of your product accrues more value to every other user.

• Deep tech / IP / trade secrets: Proprietary software or methods is where most technology companies start. These trade secrets can include novel solutions to hard technical problems, new inventions, new processes, new techniques, and later, patents that protects the developed intellectual property (IP).
• High Switching Costs: Once a customer is using your product, you want it to become as difficult as possible for them to switch to a competitor. You can build this stickiness through standardization, from a lack of substitutes, through integrations to other apps and data sources, or because you have built an entrenched and valuable workflow that your customers depend on.
• Brand and Customer Loyalty: With each positive interaction between your product and your customers, your brand advantage gets stronger over time, but brand strength can quickly evaporate if your customers lose trust in your product.

I appreciate any of your feedback as my thinking around this discussion becomes more refined. I can be reached via LinkedIn, Twitter or jerry (at) greylock.com.