MOATs Aren't Useful
clarification
What I mean is that, conceptually, “MOATs” are not a useful abstraction. There is a saying that “all models are wrong, but some are useful” and I am saying that, as a model, MOATs are not useful. I think that asking a founder “what their MOAT is” will not offer useful information about their project.
I am also specifically referencing tech startups.
what is a MOAT
From what I gather, a MOAT is defined as “a company’s (unique) ability to maintain a competitive advantage that protects its long-term market share and profits."[1]
why it’s not useful
A company’s ability to maintain a competitive advantage is solely dependent on people wanting to use their product. If more people want to use your product than your competitors product, you’ve won. In other words a MOAT is just a good product, and as to “protecting its long-term market share and profits” that is a skill issue, a bet on the founders. Even if someone copies your product, they don’t have your vision that spawned the product in the first place. Big companies also don’t allocate resources to taking the same product risks as startup founders–they stick to what makes them money. Further, the whole prospect of “competing” with other companies is an ineffective framing. There is rarely one clear “MOAT” that founders can point to, just their vision, and how many people love their product. Asking “what’s your MOAT” may be the worst way to get founders to communicate this, because they are more likely to make something up that they think you want to here, or worse, they might actually believe whatever they told you.
why people think they need MOATs
The traditional thinking goes: without some special advantage that others can’t replicate, competitors will copy your success and eat your lunch. This makes sense if you’re selling commodity widgets. It makes zero sense in technology.
Look at the major tech successes:
- Facebook wasn’t the first social network
- Google wasn’t the first search engine
- Apple wasn’t the first computer company
- Amazon wasn’t the first online retailer
None of these companies succeeded because of some mystical MOAT. They succeeded because they built something people wanted and kept building. The “MOAT” emerged as a side effect of execution, not as some pre-planned strategic advantage.
traditional explanations of “MOATs” are bad
A startups success is not a static victory protected by a MOAT–it’s an iterative process of understanding users and shipping improvements. When founders try to articulate their MOAT, they usually default to one of these weak explanations:
- “Network effects” (which only matter if you have a product people actually want to use)
- “Proprietary technology” (which becomes commoditized surprisingly quickly)
- “First mover advantage” (meaningless - see the examples above)
If you optimize for these things you will lose sight of actually just making stuff people like to use, which is all that matters. These are symptoms, side effects.
P.S. If you can learn it in business school, it’s probably wrong.
[1] Summarized off this article which is the top google result. No judgement levied against the article or its writer, I just wanted to synthesize a fair definition to base my argument off of.