Insight: SaaS (14) The Moat of SaaS

Unlock a $500 SaaS Report — Join Now!

Join our exclusive Discord community (2023) today and instantly receive a complimentary SaaS report valued at $500! As a member, you’ll also enjoy weekly digital resource giveaways, keeping you at the forefront of SaaS insights.

How to Get Your Report

Ready to dive in? Click here to Join Our Discord Server now and claim your $500 SaaS report. Don’t miss out on this opportunity!

We covered why SaaS products should prioritize inbound sales and content marketing in the last article ‘Insight: SaaS (13) Inbound sales & content marketing’. What is the moat of SaaS products and what isn’t the moat of SaaS products are discussed in this article.

Many business experts have their own definitions and examples for the term “company moat.” I’m not going to elaborate on them right now. The simple concept of a Moat is a barrier that prohibits your competitors from effectively competing with you so that you gain a competitive advantage. This barrier is the company’s Moat. Investors frequently inquire about Moat. Companies that erect barriers are less likely to face competition, which lowers investment risks. In truth, there is no such thing as a flawless Moat. In addition to the answer, investors will look at the entrepreneur’s mindset, experience with the industry, and perception of competition when they ask this question.

The SaaS industry has certain entrance hurdles, but they are not particularly high, and competition is severe. Setting up one’s own Moat is critical for SaaS entrepreneurs looking to boost their companies’ competitiveness. Along with its industry and specialized service sectors, each SaaS company will have its own set of Moats. Local governments in China, for example, will supervise the development of local industries. An area is programmed by the concentration of the same industry. Guangdong, for example, will concentrate on electronic equipment. Establishing a solid relationship with local government departments is the moat for electronic equipment manufacturing SaaS. The second topic we’ll cover is general Moat, which is widely available for most SaaS.

What isn’t a SaaS company Moat?

1. Research and Tech

Many organizations’ moats are their “deep tech” and “research” capabilities. This is only your team’s advantages and strengths, not Moat’s. There is no technology that can be mastered by one single team. This is not Moat, no matter how many so-called scientists and technicians you have on your team. Other businesses can also put together a competent technological team. There is no quantifiable benchmark for determining somebody has great technical abilities. The use of appropriate technology to solve client problems is what SaaS is all about. The idea is to adapt the technology to the scene. More valuable than pure technology is knowing how to use it to increase business capabilities. Large organizations always outperform small businesses in terms of scientific research skills. They have greater talent, but not all huge firms have the technical capacity to monopolize all markets. As a result, neither technology nor research will be the Moat of SaaS companies.

2. First mover advantage

SaaS enterprises with a first-mover advantage can seize market share at an early stage. You may gain an advantage by launching the product before others, but there is no assurance that you will be the first to reach the end. The SaaS market is a 2B market. This market is known for its constant cultivation and acquisition of clients. In a short period of time, no SaaS business can dominate all of the marketplaces. Even in mature markets with a clear leader, such as CRM, BPM, and HR, latecomers can steadily win customers. Customers will purchase your products and then leave. Temporary success isn’t everything, and it isn’t a Moat.

3. A novel Marketing & Sales channel

If a SaaS company boasts that it has a new way for acquiring clients which is absolutely confidential and no one else knows about it, he is most certainly lying. The customer acquisition method is the easiest strategy to imitate the follow-up strategy. Competitors will immediately duplicate if a company’s customer acquisition approach is effective. It takes a long time to change a product, but marketing does not. The means to attract clients isn’t the Moat of a SaaS company either.

4. Work harder

Many founders will claim that they work really hard and their team is extremely entrepreneurial. However, someone will always work harder than you. Although hard work is essential, you are misleading yourself if you claim that this is Moat. The choice is more important than hardships for SaaS businesses, and cognition is more important than toil. If hard work guarantees success, someone will work 16 hours a day, seven days a week. Whoever does not sleep will win in the end. This is clearly a misrepresentation of the facts. Working harder is clearly not Moat’s style.

What may be turned into a SaaS Moat?

1. Network effect.

A prominent example of Moat is network effects. Facebook has created its own moat based on people’s connections. Companies that provide software as a service (SaaS) are not like social media companies in that it is difficult to locate solutions that are built on robust connectivity. However, we can alter our perspective slightly: the more frequently SaaS is utilized, the higher the value to clients. This is feasible. DocuSign is a great example. The more companies that use Docusign, the greater the value of their product. If customer A asks to sign a contract to use Docusign, partner B may use this product. If customer A’s all future customers using Docusign, Docusign is extremely valuable.

The established Moat can be improved if a SaaS provides a platform for upstream and downstream companies to conduct transactions. For example, many Web production firms, such as Wix, have a large number of suppliers who produce Wix templates. The more suppliers there are, the more probable customers will buy, and the more paying customers, the more suppliers there will be. This type of bilateral group’s value rises in lockstep with transaction volume, and it’s also a variation representation of network effects.

2. Consistent brand development.

The power of a brand, especially for SaaS enterprises, is immense. Customers are easier to come by for well-known SaaS. Based on similar product functionalities, the one with the dominating brand can attract more customers, and a strong brand can help you construct a moat. Branding, on the other hand, is a long-term process, and it’s difficult for SaaS companies to establish strong brands without continual investment.

3. Replacement cost.

Replacement cost may be the most critical Moat for any SaaS business. Through an excellent user experience and continued successful use, SaaS providers can considerably enhance the customer’s replacement cost. Customers will be concerned about whether switching to a new supplier will produce similar results and whether they would suffer significant learning expenses. The strongest protection against the competition is to improve your product experience. Competitors had to outperform you to replace you.

Increasing product replacement cost is one option available to most SaaS organizations.

1. Within a few years, every company will replace the SaaS products it has purchased.
2. Replacement takes place only when the benefit of the replacement outweighs the expense of replacement.

How to improve your defensive ability?

For SaaS organizations, data is a critical way of increasing the replacement cost. Customers’ data created by your SaaS offerings is a valuable asset. Increase replacement costs by making good use of these data to provide greater value to customers. CRM, for example, can store all of the company’s customer and transaction data. This information will be lost if the CRM provider is changed. Most businesses find this unacceptable. CRM companies can also provide marketing optimization solutions based on this information. It’s a service that a company can’t provide without data, and Moat is available as well.

User behaviors are an unnoticed way for replacement prices to rise. You must be aware of the habits of your users. Do your clients, for example, frequently log in to your products using PCs or mobile phones? What are the most popular browsers and operating systems? You’ve optimized your product for their needs. Customers will find it easy to use and will not contemplate replacing SaaS. This effectively eliminates the prospect of replacement.

Meet new needs on a continual basis, with a focus on customers. Customers’ requirements are always shifting. Marketing products had to be targeted at email marketing 15 years ago, but now they must contend with social media marketing. Customers used to require outbound call centers, but now they require phone robots. The market will keep innovating every ten years. To keep your customers, you must stay updated on market changes and continue to accommodate new customer wants.

If you claim that there aren’t many competitors in your market and that you don’t need to think about how to establish a Moat, you may be facing an even more difficult problem: you may not have competition, because your market isn’t worthy of competitors to compete against you.

The next article ‘Insight: SaaS (15) Why does SaaS need user experience?’ is published. Simply send me some claps and feedback if you enjoyed my article.