Every day I have the privilege to check pitch decks and speak to many founders.
Often, I come across startups that are different from their competitors and have a competitive advantage. For instance, the product is integrated with more tools than any other player in the market or the range of feature is much more complete.
However, few companies (can) explain why this competitive advantage is defensible over time.
Upon investing I assume that a startup with 100k MRR can turn into a company of 20M ARR in less than 5 years’ time. During these 5 years, loads of things can happen. Competitors can start copying your product, new entrants might enter the market or something unforeseen might happen.
Therefore, I like to know, how defensible your position as a company is.
If you can sustain your valuable position, odds are higher you turn out to be a great company in the long run.
Defensibility can come in many forms. For instance, economies of scale, brand, legislative protection and control over scarce resources.
For software/SaaS companies, we see that the creation of a lock-in effect* is one of the most effective ways to create a defensible position.
Here is a 12 questions checklist that helps you evaluate how your company is doing:
1. Is your software tool integrated with core systems that the client is using?
2. Does your tool provide data analytics insights that can only be created by using your tool?
3. Is your product ingrained in the habits of the people using your product?
4. Does the product get better if users invest more time in it?
5. Was there a considerable implementation time for the organization to use the product?
6. Does the product have recommendation engines that continuously provide a better tailor-made experience?
7. Does the experience of the tool get better if more people in the organization use it?
8. Does the client organization have a superb experience and relationship with your customer success team?
9. Does the product give the ability to purchase content or apps that are exclusively hosted on your platform?
10. Does the product have been (a bit) customized to the workflow of the client?
11. Are extra products built on top of the original product in order to enhance the experience (and based on customer feedback)?
12. Are multiple stakeholders in the organization using your product?
Good luck with developing a sustainable competitive advantage!
*Please note that we believe that a lock-in effect is only sustainable when users are genuinely happy using your product. It’s not the goal of a company to create a ‘trap’.
(This was originally published by Arthur Nobel at Medium on the 15th of January, 2020)