Leo Polovets @lpolovets General Partner @SusaVentures (seed investor in @RobinhoodApp & @Flexport). Before: @Caltech → 2nd non-founding engineer @LinkedIn → @Google → @Factual. Jan. 11, 2019 1 min read

1/ The more I think about moats (sustainable competitive advantages), the more interested I become in "compounding moats," which are competitive advantages that get stronger as your company grows. Below is a partial list of compounding moats and how they grow over time.

2/ Economies of scale: as you sell more product, your per-unit costs continue to drop.

3/ Network effects: as you sell more product, the product becomes more valuable to your users.

4/ Data network effects: as you sell more product, you accumulate more data for improving and differentiating your product from other solutions in the market.

5/ Brand: as you sell more product and continue to meet/beat customer expectations, your brand becomes stronger and stronger.

6/ Locking up scarce resources and distribution channels: as you sell more product, you build up more clout to carve out exclusive agreements (thereby locking out competitors).

7/ Product ecosystem: as you develop more interdependencies and relationships between your product and other products that your customers use, your product gains momentum as the "default option" and switching costs rise dramatically.

8/ There are other examples, but the key is that each of these compounding moats continues to strengthen your position over time. So maybe in Year 2 it costs someone $10m to compete w/you, but in Year 5 it's $300m, and in Year 10 it's billions. That's a great position to be in.

(cc @AliBHamed @RomeenSheth)

You can follow @lpolovets.


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