Business model is the only moat

Conventional moats aren't working to build a successful business. The realities of building in 1990 to 2020's has dramatically changed. We have to be a smart chef to win.

Ola! I am back with my weekly dose of writings on business, marketing and culture. 

Before I jump into the topic, tell me how’s the week been for you? Believe Friday must have been a public holiday in most parts of the world. I was quite relieved to work only 4 days, with Thursday seeming like a holiday in itself. I hope you had a good time. If not, find a way to have a good time. It’s not difficult. 🙂

Photo by Roberto Nickson on Unsplash

Last 2 weeks, I focused on web3. Right now, I am working on the topic of document digitisation in the shipping industry. If you don’t know, Tradelens, one of the largest blockchain based e-BL providers shut down last Nov. It was a shock and is begging the question why. I have some answers but I need to do more thorough “talking” with insiders before publishing. 

Today is going to be about business models as a moat. I believe patents, marketing, product and supply are commoditized a great deal now. What makes a business thrive is its business model. What is a business model all about? 

For a business, It is the way to make money, who do you charge, how much do you charge, why do you charge. It is the way to conduct and earn from a business. You need a moat around your business to prevent competition from eating away your pie. 

Here is the thing - most established moats are now commoditized. You can hire a good marketer, or marketing agency, and access the best marketing tools with some extra money. Creativity is easy now with Canva, Unsplash, Envato and other tools. Creating a social media post is a few seconds task. Everyone advertises on Google and Facebook. Tiktok is increasingly becoming crowded.

You can get cost advantage by purchasing from a large manufacturer in Vietnam, Chain, or Bangladesh. In fact, you can just drop ship. 

Content writing was tough - now with ChatGPT, copy.ai and Jasper - this is becoming easier as well. Writing code is becoming easy - this was the toughest thing for me. I would be trying copilot and other tools to build apps soon soon 😉

Regulatory advantages aren’t guaranteed until you are Ambani, Adani or Samsung’s of the world. 

So what would really work to build a moat that allows you to survive and thrive? It’s your business model. It tells you how you will make money. But it does something interesting. It tells you the right tools and process to make that money. 

The point is - one differentiation or strength is not enough. It’s like cooking a dish. You need to identify the customer, what will he like, prepare that dish and serve it nicely and in a nice place. Okay fine, I have gone too far with this example. But you get the drift.

What works for a user in India may not work in China, or Japan. Hence markets are unique because consumers are unique, regulations are unique, and distribution is unique. Business model is the unique sauce that the user will like, use and pay for.

The best way to find what will work is to look around you. Without going into details some examples of great business models are -

1. Walmart, DMart, NTUC Faiprice

2. Amazon, Microsoft, Nvidia, Paypal

3. Music Labels (while Spotify saved them, I don’t know when will it save itself)

4. Google, Facebook Ad model

5. Food sciences companies - Syngenta, Bayer, Cargill

Let’s talk about the conventional moats - 

1. Brand identity - This is built with marketing prowess such as Nike or Crocs. My favorite is Bata. Every country thinks it is their own local brand - try asking a Singaporean, Malaysian, Indian or Brazilian.

2. IP, protected information, Skill/Knowledge  - IP is the favorite of University Professors. Unfortunately, it rarely builds a business. However, the skill to build something world class is a great moat. Think Ferraris of the world. Think Finance professionals. Not everyone can do what they do.

3. Network (as in network effect) - Built with having more users use your product, ideally building and sharing meaningful connections. This has overlap with rich data moat. Also this takes a long long time. The shortest someone has done it is TikTok (actually ChatGPT is fastest, but I believe it’s total users will be limited). TV and news articles will claim Tiktok’s rise was in less than 3 years (it hit the number in 2018). However, Tiktok journey started in 2012. The founder had been tinkering on content for several years before Tiktok was born.

4. Cost of switching - You know how difficult it is to switch from Android to Apple? Imagine moving users at enterprise level from one system to another - it could cost hundreds to millions of dollars and sometimes years of effort. Again, this takes a long long time. Most often, cost of switching decreases with time as underlying tech becomes cheaper and accessible. Think phones - almost all smartphones today have the same capability. 

5. Cost advantage - A lower cost of producing a product gives you enough free cash to invest in marketing, R&D and even competition mitigation.Imagine competing with Walmart on price! A good Asian example would be NTUC Fairprice in Singapore or DMart in India. Among software firms, Zoho is a good example. 

6. Regulatory - This is a beast people miss talking about. You know that for a company or person to import onions into Indonesia, you need a quota approval from the government. If you are lucky and secure a quota and miss importing the given quantity of onions, you will “never” get quota again. Think of the import duties, ban on Huawei in the US, ban on TikTok in India and government subsidies across the world. 

7. Distribution means access to customers, could be retail customers like us or enterprise customers. Do you know why the crappy Teams software was being used by millions of users? As a PM at Microsoft put it - MS is a Sales and Distribution Company, not a tech company. You give them software and they will ensure 100 mn users are using it within 30 days. Another typical example is Unilever or P&G. They have access to supermarket and retail store shelves. They can distribute even a crappy product to the masses. However, to survive, the product has to be decently good. It is poor or damaging, it will die down soon.

8. Experience - This is the new kid on the block. Think how many friends have told you that “apple experience” is too good to move to Android! If you read app reviews on G2 or Shopify store, you will be surprised by the value of swift and positive response to a customer complaint. A great contrasting example is the Ola electric bike launched in India. The product had issues, but the bigger issue was customer service. Instead of helping customers with the problem, Ola began to hide and even threaten customers with legal action. 

Disclaimer: All the above assumes you have a functional product and does at least 50% of what you claim.

I must tell you the journey of completing this article was shamefully unstructured 🫣 I was aiming to do Biz model setup for a business idea - sponsored content platform for PR - however, it would have made it too long. I would do it on the side and share if it comes out meaningful. 

Epilogue: I have decided to craft Croissants at home. A big challenge that I haven’t even started to work on. I will soon share photos 🙂 I have also decided to write about anti-ageing, a field I believe is growing fast with brands jumping in with specialized supplements to help you live longer. The world is aging at an unbelievable rate.

See you next Sunday! Cheers!