A while back we did an extra “Day 0” AMA session at SaaStr Annual and several hundred founders came. One asked what the top moats are in SaaS.
At the time, I didn’t have a great answer. A lot of SaaS apps don’t really have moats, I thought. But that’s wrong.
Let’s take a look at moats in SaaS:
- Brand. Brand can be a big moat in SaaS. Most customers just want to pick the app they’ve used and heard of. We all underestimated this in the earlier days of SaaS. There may be 100+ CRMs today, but most of us just want to pick the one we know.
- Data. Data lock is real. LinkedIn owns the human record.
- Structured Data. Even if data resides in many silos, structuring makes it unique. Exporting your Customer records from Salesforce is a huge task.
- Partners + Ecosystem. The top partners in the Salesforce, Shopify, etc. ecosystems do get most of the leads. And this compounds over time. The AEs, the biz dev folks, tend to send deals to the partner everyone trusts and knows.
- Integrations. Most vendors only integrate one third party in each category, maybe two. Zapier is integrated everywhere. Maybe 10x more than anyone else … So also, build more of them. Before someone else does.
- Agencies and Implementation Partners. Third parties want to specialize in helping customers deploy just a handful of leading apps. This is a big part of Hubspot’s GTM, and of many in the Shopify ecosystem. Own the agency relationships, and it’s really tough for others to break in, absent strong organic customer demand. No one ever got fired here for deploying a market leader …
- Long-Term Contracts. Yes, we hate this. But getting customers to sign 3+ year contracts does work. Not perfect. You can buy out these contracts, and break them. But 3-year contracts are a partial moat.
- Using Massive Amounts of Capital To Play In Every Segment. Dominant-dominant strategy is tough to play well, but being in every single segment when the competition can’t afford to be is a form of moat.
- “Most Enterprise” Vendor. If you are the most secured, most trusted, most 2FA, most HIPAA, most SOC-2, most everything vendor … you will win where that matters. And it matters a lot in the enterprise.
- No Contract At All. Yes, a long-term contract is a “stick” moat. But there’s a “carrot” flip-side: making it 10x easier to onboard than the competition does.
So the meta-point is there are actually a lot of moats in SaaS, of various strengths.
As we start to plan for next year, maybe that’s a place to agree on an initiative or two. A company goal. And maybe a priority change here or there.
-> Ask the team at your next planning session — What’s Our Moat? And How Do We Reinforce it Next Year?
And see where that goes. It probably goes somewhere good. If you are going long, that is.
The “what’s your moat?” question for early stage companies ignores the fact that if a one year old company can build a moat, it’s NOT a real or deep moat. Real defensibility take significant time to build. Correct phrasing; “What will be your moat?”
— Gokul Rajaram (@gokulr) January 12, 2021
(note: an updated SaaStr Classic post with new video etc)