Why You Need to Keep MOATs Front and Center in Your Product Roadmap Strategies
When you think of the term ‘moat’, what comes to mind? By definition, a moat is "a long, wide hole that is dug all the way around a place such as a castle and usually filled with water, to make it more difficult to attack". I know you’re probably wondering: what does this have to do with your product roadmap strategies?
When it comes to your product, a MOAT is about building defences to break away from the competition. It’s about setting broad goals for your product and defending your company against current or future competitors. The reality is that your challengers are out there, and many will try to make an identical copy of your product to compete for your TAM (Total Addressable Market).
This is why it’s important to have planned actions, keep MOATs front and centre and determine your short-term considerations about how to deploy resources to accomplish a roadmap strategy.
Remember that great companies will reinforce their MOAT(s) early and often. The product manager’s role is to help determine the product mission that will lead their team on a path to achieving goals, transforming visions from strategy to execution. Don’t be afraid to make your CEO provide a clear vision, to collaboratively explore all of the defences you can add to your product today and in the future, so long as you’re aware that it is your responsibility to defend the product from clones.
The earlier you start building your product defences, the more it will work in your favour down the line!
11 Types of MOAT
Before diving right into the 11 types of MOAT, first you need to understand the three main pillars they sit under — market expansion, innovation and cost-efficiency. This is what your product strategies can be targeted toward.
When we talk of market expansion, this includes presenting your product to a wider market (e.g. new demographic, geographical region, etc.). This helps to get ahead of your rivals and ensure your product is included in growing markets. In terms of innovation, this is all about making significant changes to your product to increase its value as well as to stay ahead of competitors (e.g. innovating in R&D).
And finally, what do we mean by cost-efficiency? This is where you enhance the performance of your product leading to cost savings and improved company processes (e.g. more margin though automation).
Now that we’ve laid out the overarching pillars, let’s dig deeper into the 11 types of MOAT to help you succeed in your product roadmap strategies.
- First to market
This is about out-pacing your closest rivals and creating a culture that constantly brings new innovations, ideas and features first to market. A bad example would be Yahoo. They were first to market in the search space but spent years increasing revenue exploring the media/ad space, allowing Google to out-pace their search technology. Being first to market means having a culture of releasing the unexpected regularly.
On the other hand, a great example is Dolby. They’ve been around since the 60s and have been regularly outpacing newcomers by releasing revolutionary and evolutionary improvements in sound technology — from analog to digital and now into streaming and gaming consoles. They remain unique in the market and hard to catch.
- Regulatory protection
Regulatory protection is about decreasing your customer acquisition costs and opening yourself up to new markets and segments because you have the proper certifications that allow customers to work with you (legally) versus the competition. Being compliant means you have a leg up on your competition and clients will work only with the companies that check off all the compliance boxes.
For instance, Robin Hood is a member of SIPC (Securities Investor Protection Corporation), which protects its members’ securities customers up to $500,000. The bottom line is that clients/customers will work with a company that complies with the most certifications and attestations; laws, regulations and privacy; and alignments and frameworks. This is about transparency and letting your customers see into your operations.
Adapt an offering, process or experience to increase your reach across countries, languages and cultures. For example, Netflix INTL market growth and revenue exceeds what it can earn in North America only. Netflix recognized this fact and therefore created shows personalized to specific countries and languages. Today, by tailoring their content to the context of country-specific audiences, they increased their market share substantially. For every global expansion, you need to build features to support that expansion and market size.
Often your product can reach more than one industry, sometimes those that go hand-in-hand (private security vs police) or some that are completely at odds (sports vs medicine). When you realize that you have product-market fit in more than one industry, then it’s important to validate how you can include the secondary industry in your company growth strategy.
It’s important to diversify and expand into new or different channels. For instance, Virgin extends its brand into sectors ranging from soft drinks to space travel, and POC is a Swedish company that manufactures skiing/snowboarding/cycling helmets, apparel and sunglasses. Looking at some other examples, Instagram has moved from picture filters and video to now e-commerce and Uber has gone from cars to food. These companies are constantly expanding their market.
Think about combining two or more entities to gain access to capabilities and assets, whether that be through partnerships, alliances or collaboration.
- Network FX
A network effect is when another user makes the service more valuable for every other user. Once your company gets ahead, users won’t find as much value in your competitors’ smaller networks. Think about the phone. Alone it’s just a useless piece of hardware, but connected to a network it’s extremely valuable. There are five major types of network effects.
Think about providing a communal resource and connecting multiple sellers with multiple buyers. Facilitate visceral connections to make people feel they are part of a group or movement and put your users to work in creating/curating content that powers your offerings.
- Intellectual property
IP is about market surveillance (sending cease and desist letters for any type of alleged intellectual property right infringement to slow down competitor attempts), identifying the ‘white spots’ in the patent world and filing patents to keep competitors at bay. It’s also about strategic acquisition of IP. You need to establish a process for managing confidential information (e.g. NDA) and create a culture of R&D within the company (ex: Hackathons) or separating your R&D team from engineering and product delivery. This includes patents, brand copyright, industrial design and software source code.
Trade secrets and data can be protected by way of contracts (Soft IP). For example, Apple is a closed system where cloning becomes expensive — from chip to hardware to industrial design to software. Tesla is the opposite as they believe in anti-IP where their R&D is openly shared with competitors in order to make their technology compatible with global car manufacturers.
- Customer lock-in
Customer lock-in is the concept of embedding your product features into the day-to-day workflows of your customers. This is when you integrate your software into a customer’s operations so they can’t easily rip and replace you with a competitor product. This is obviously more prevalent when customers are organizations, not individuals, and is typically accompanied by a direct sales force to drive the embed (e.g. Workday, Oracle, SAP) The key is to create high ‘switching costs’, i.e. making it difficult to stop using the product or making it impossible to replace.
Some examples include loyalty programs and providing discounts to frequent customers (e.g. Nespresso is a members’ only club); ‘try before you buy’ offerings letting the customer test a product/service before investing; as well as bundled pricing, selling in a single transaction two or more items that could be sold as standalone offerings.
- Gross margin
Gross margin is not about reducing your overhead by firing staff. If there is a scarce and limited supply of inputs, then there is an opportunity to create an advantage by controlling all of the available supply. For instance, Element AI cornered the Data Science market by hiring at 20% over Google and Facebook's salary ranges. This strategy created a resource scarcity in the AI market and forced competitors to evaluate increased salaries, ultimately making Element AI’s bids on projects cheaper than their competition.
Gross margin could include assigning the responsibility for developing/maintaining a system to a vendor, crowdsourcing to outsource repetitive or challenging work to a large group of semi-organized individuals as well as providing users with control over activities that would otherwise require an intermediary to complete.
- Process power
One of the inspirations for the founder of Toyota, Eiji Toyoda, in scaling up the company was the manufacturing revolution pioneered by the Ford Motor Company. In 1950, he visited Ford’s flagship ‘integrated factory’ and was shocked at the wastefulness of the processes he observed. These operating principles, also known as the Toyota Method, are designed to provide the tools for people to improve their work continually. It offers a long-term philosophy of finding the right processes that will produce results, adding value to the organization through employee development and continuously solving root problems to drive organizational learning.
Process power is therefore all about performance simplification (e.g. removing unnecessary features), focus (i.e. designing an offering for a specific audience), process and asset standardization as well as process efficiency and automation.
Read more on how WatchMojo has closely followed the Toyota Method through their integration with Xero.
- Economies of scale
Consider developing syndicated products or services to attract more customers at a lower price point so as to out-compete smaller rivals. For example, Amazon Prime products attract customers at cheaper prices but can only do so if it forces the white label supplier to give them a major discount. Essentially, it’s about providing goods made by others under your company’s brand.
Investors favour pricing models that provide a high level of predictability, like SaaS (software as a service). Over the last decade, subscription-based SaaS pricing has become the standard. Enterprises have moved away from expensive, monolithic vendors, instead choosing to build bespoke tech stacks that plug into a range of best-in-class solutions. Today, the average enterprise buys from over 900 SaaS vendors.
Try exploring specific pricing models (e.g. pay-as-you-go, membership, subscription, per-user, tiered, flat-rate, feature-based, bundling, freemium, etc). Hubspot is an example of feature-based tiered pricing and Digital Ocean, a hosting company, has perfected the transparency of usage-based billing, allowing potential customers to easily see what their usage will cost for any of the services on offer.
Show the ability to contribute to company growth
As you can see, there’s a lot to keep in mind when bringing your products to the next level ahead of competitors. As a product manager, consider feature requests holistically and always in the context of how they map and complement the strategic baseline. Tie them to the MOATs and strategies, and allow for collaborative discussions to help prioritize.
If this is all a bit intimidating and you’re unsure where to begin with your product strategies and building up these defences against competitors, check out our SOAPTM methodology. This is our sustainable, repeatable planning and prioritization framework. Book a SOAPTM demo here today. We’ll work with you as partners and share product leadership best practices.
Thanks to Loren O’Brien-Egesborg and Paul Ortchanian for contributing to this article as well as reading drafts and overseeing aspects of its publication. Also, if you have any feedback or criticism about this article, then shoot us an email at firstname.lastname@example.org.
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