判断初创公司护城河的三个步骤框架

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Moats! Does anyone have one anymore? As AI makes it easy to build anything, this is one of the biggest questions on people’s minds right now. Especially people trying to decide where to work. I teamed up with my frequent collaborator, the incredibly smart and insightful Dan Hockenmaier, to answer this question: How do I know if a given startup has a moat? The answer is a lot more interesting, and straightforward, than you’d expect. Let’s get into it.

For more from Dan, definitely subscribe to his fabulous newsletter. You can also find him on LinkedIn and X.

There is a pervasive belief that startups are a lottery ticket. It’s impossible to pick winners, so it’s just a roll of the dice.

I couldn’t disagree more.

Not only can startups be a great learning experience and a lot of fun, but they can also provide economic rewards comparable to (or greater than) the “safe” route into big tech.

However, for this to be true, you must rigorously evaluate the startup you’re considering joining. Some of this is obvious: Does it have a strong team? Do customers love the product? Is it growing fast? But perhaps because it seems harder to measure, people often skip one of the most important criteria: Does it have a moat?

A company can check all your boxes and look like a rocket ship. If it doesn’t have a moat, though, it’s going to stall out. It won’t be able to keep growing once competition gets fierce, and it’s unlikely to reach a major liquidity event. That can mean wasting years of your life.

Moats are more important than ever in the AI era. Anyone can create a product; they can do it faster than ever before, and everyone is building the same things. But only some of these products will win.

Of course, assessing a startup’s moat isn’t an exact science. The good news is, there’s a simple framework that could meaningfully increase your odds of picking a winner or avoiding a flame-out, and you can apply it in just an hour after receiving an offer. The process will also teach you a lot about the business.

The framework has three steps:

• Identify a compounding advantage
• Gauge how strong that advantage could be
• Measure if it’s working

Step 1: Identify a compounding advantage

The first step is to figure out what kind of moat a startup could have. This can seem daunting, especially given how frenetic the conversation is on the topic right now. The term “moat” is being used much too loosely, as a stand-in for basically anything that gives a company an edge.

In reality, only a small subset of what people call moats actually drive the vast majority of long-term value.

They’re what I’ll call compounding advantages: not just a temporary edge, but a self-reinforcing flywheel that gets stronger and stronger over time, ultimately making a company very hard to compete with.

There are only four compounding advantages that really matter. Every major tech company has at least one. If you can’t see the potential for any in the startup you’re evaluating, that’s a red flag.

1. Switching costs: The more deeply embedded a product is in the way a customer works, the harder it is for that customer to switch. This increases retention and revenue per customer, which can be reinvested into the product.

2. Network effects: The more users a product has, the better it gets for everyone. This increases engagement and attracts more users.

3. Scale economies: The more volume a company has, the larger and more efficient its operations can be. This lowers unit costs, funding lower prices or a better product at the same price, further driving up volume.

4. Data effects: The more usage a product has, the more data it generates. This data can be used to improve the product and increase usage.

What about all of the other moats people talk about? Can they be compounding advantages as well?

A common one is speed of execution. It’s true that speed is critical for startups. But a company that has to sprint forever is not a good business. Ultimately, it will misstep, slow down, and competition will catch up. Speed gives a company more shots on goal as it tries to build a great product and a great business, but it must eventually find something more durable.

Another favorite is distribution. It does matter more than ever: building products has gotten easier, but getting them to customers has not. But distribution is not a compounding advantage either. It helps create the raw ingredients for one, but it is not one itself.

Finally, we have brand. The idea is that when everyone is building the same thing, the most resonant brand will win. But for startups, brand works more like customer acquisition spend: Put money in, get growth out. It’s not something that will effectively keep others from competing long-term. Brand can become a true compounding advantage (as with Coke or Nike or Apple), but it just takes too long to really matter for most startups.

Speed, distribution, brand, a great founding team, and lots of funding—these are all fuel. They get the car moving in the right direction. The four compounding advantages are what it looks like when the car starts rolling downhill on its own.

How to identify the compounding advantage

Your job is to identify which kind of compounding advantage a startup has the potential to build. It won’t be in full force yet (it takes a long time to develop), but it should be pretty clear which path they are on. That’s because it’s not something you can “bolt on”; it’s not some clever competitive tactic or a tweak you can make to your business model.

A compounding advantage is the core loop at the center of the business through which you add more value for customers. Defensibility emerges as a byproduct of turning the flywheel over and over.

So as you evaluate a company, don’t focus on what they say they are or what their “strategy” is. Focus on what they’re actually doing. What is the team working on every day? What’s on their roadmap? Which teams are large and influential inside the company?

Here is what to look for:

1. Switching costs

Switching costs are sometimes viewed negatively: as something that keeps customers trapped or a reason clunky legacy software never gets replaced.

But think about what it takes for a product to get into this position in the first place. It first has to become so deeply embedded into the way a customer works, so essential to their business, that they can’t remove it. That requires creating a product that delivers enormous value.

Mike Vernal recently wrote something of a manifesto for anyone building this kind of business today:

If you are building a venture-backed software company, I think the answer is once again “do it all.” Just build the whole thing—your moat is the totality of what you’ve built and completely owning the buying center.

Some have argued that AI is making switching costs irrelevant. AI does make the actual migration faster and cheaper, but that is not where most switching costs actually come from. The bigger cost is what I’ll call the “workflow tax”: all of the time the team spends learning a product and building it into how they work, and how disruptive it is to do that over again. AI also helps teams build products much faster, which could allow them to become even more embedded across a wider range of surfaces.