Building an Economic Moat: Strategy Nerd Stuff for Service Providers
Is your business impenetrable? Do you want to win an unfair share of the market? Build a moat around your service provider castle to make it difficult for uninvited guests to get in–and to give your customers a delightful experience.
The investment firm Morningstar coined the term “economic moat,” referring to how likely a company is to keep competitors at bay for an extended period. Warren Buffet said, “In business, I look for economic castles protected by unbreachable ‘moats’.”
From the Berkshire Hathaway 2000 Annual Meeting: “So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way—it’s just too risky. We don’t know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses—or virtually all of our businesses—-have pretty darned good moats.” (Read more at https://www.businessinsider.com/buffett-on-moats-2016-4#q52x0HDAvguCCfxS.99.)
There are many ways to build an economic moat, but the one I suggest service providers look to is service. Perhaps you’re thinking: Well, great. AWS is a service provider, too (as well as Google, Azure and IBM), and they are the breachers. How can I compete directly with them? And to that I say, unless you are really big, don’t try to compete with them. As a reference point, I understand that AWS has about 5,000 releases per year (including all small fixes and whatnot). How many releases per year are you doing?
if you aren’t huge, be specific.
“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced 1 kick 10,000 times.” – Bruce Lee.
From my aggregated view of the worldwide cloud and hosting industry, this approach requires a change of direction. How so? Many service providers are so focused on winning the deal (almost any deal) that they are trying to be something to everyone, and end up being too little to most. Said differently, an ocean that is a meter deep may have great visual appeal, but in reality it is useless. A river, although not as wide and all-encompassing, offers specific direction, power and simplicity.
What does that mean to you as a service provider? Focus, focus, focus. Find an area to be the best. That route may be vertical-specific, or application-specific, or route-to-market specific, or other specific. Rackspace did with it Fanatical Support, and they’ve done it again with their Managed Cloud services. Some service providers end up with a focus accidentally, and some do it on purpose. if you aren’t headed toward a specific goal, make a plan to get there.
“It gets extra tough when a fanatical small competitor … sets their sights on your particular marketplace,” Buffett said. “How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it.” (Read more.)
We can help you find your focus through our Fueled by NetApp program. Building out an area of expertise enables you to create a market and be the master of it, making it difficult for others to compete. You can change the conversation with your customers from a commodity, price-based discussion to a business outcome conversation, with proof to back it up.
This is an economic moat. Once you have built a moat, expanding it with additional areas of focus strengthens your position and business outcomes.
You may be saying, OK, but how do I get started? The following overview describes how to get moving toward your economic moat of specificity.
1. Identify the focus–two paths
a. You need three to five successful customers. Remember my last blog, “Customer Focused Go-to-Market Strategies for Growing Your Service Provider Business”: This isn’t about you (inside out); it’s about your customer’s success (outside in).
i. Success equals your customer achieving desired business outcomes enabled by your services.
ii. This may require some consideration and discussion with your customers.
b. Repeated motions (sales, operations, support, etc.) due to success. This is wide open to many areas of focus, but, in the end, you have a high level of confidence in this particular repeated motion because it is so frequently successful!
2. Define the success – customer first, then you
3. Plan for scaling success
4. Go to market with success
5. Monitor success
6. Optimize success
7. Expand into additional area of focus by building parallel processes
You can claim your unfair share of the market by building an economic moat based on a specific focus on what you deliver best. We support service providers all over the world who are doing this today. Start partnering with our Fueled by NetApp consultants today to create a business strategy that is specific to your areas of focus. We’ll help you productize, develop, and promote your cloud-based services for a better hosting experience for your customers. For more insights, ask for a Fueled by NetApp engagement.