The 3 Cs of building a moat in SaaS
Content, Community, and Certification
There’s one ratio to rule them all in SaaS. The LTV:CAC ratio.
Today’s SaaS startups were born in a world with cheap customer acquisition costs.
The barriers to scale were low and competition flourished.
Apple’s iOS 14 update flipped the equation on its head.
With increasing customer acquisition costs, it’s time to double-down on lifetime value.
Every growth leader should be inspecting their acquisition cohorts.
How can you get your retention curve to smile?
Start building moats.
A moat is a company’s ability to command a margin by maintaining a sustained competitive advantage.
So why do some companies manage to create moats while others get sucked into the race-to-the-bottom?
Every company needs good product-market fit, right price & positioning, and solid customer acquisition. That’s table stakes.
Moats, however, are wedges earned over time through identifying and exploiting a key differentiator.
I’ve built my own mental model of what tactics build moats in the SaaS world.
💡 For a comprehensive analysis on the business strategies to build sustainable moats over time, read 7 Powers by Hamilton Helmer. Here’s a great summary of that book. 💡
The 3 Cs of Moat Building in SaaS: Content, Community, and Certifications
There are 3 components of sustained success in SaaS: Content, Community, and Certifications.
Content
Content is one of the most powerful tools a company has to build a brand. Content creates moats for a brand when it creates utility for customers (and potential customers) beyond the core product/service feature set.
Moat building content must have these 3 components:
Credible - The audience must believe that the content’s substance (data, insight, advice) is true. In order to do this, the information must be presented without an underlying motive. Content loses credibility when it appears like a veiled sales pitch.
Actionable - If your content doesn’t help your customers & prospects do their job better, it won’t have legs. The content that gets read and spread is content that drives action.
Unique - The best content is original data, research or insights from the company itself. Volume is no longer enough. You can’t simply publish a list of links or summarise someone else’s idea. Content must move the audience’s understanding of a topic forward in order to create value.
Community
Many brands aspire to build communities around their products. Few make it happen.
Most companies get stuck in the first quadrant of speaking out to their customers. Very few are able to facilitate natural conversations between customers.
Community is when your customer becomes a member of a tribe. The customer moves from a solo experience between them and the product, to a multi-player experience where the community creates value.
Certifications
Can mastery of your product become a ‘marketable skill’?
Any product where there is an opportunity for a ‘services layer’ to help the customer with integration, adoption, or best practices should consider introducing certifications.
Certifications are both viral and potentially profitable.
They are viral because your power users will become certified to signal to the market that they are an expert. These experts will move around in their careers embedding your software wherever they go.
Certifications can also become a profit centre if your software becomes an industry leader.
One note of caution. This is not an argument to make your product more complex so more people will need to get formally certified, but rather understand and playbook what your super users do.
3 case studies from the sales software business
Gartner: Cornering the market on industry-influencing content
What they do:
Gartner is a $4.1B business founded in 1979. They have demonstrated remarkable staying power despite lacking a truly innovative product. Gartner sells knowledge services, including research, events, and consulting.
Research makes up ~90% of their revenue according to their Q1’22 earnings.
What is their moat:
Gartner is a content engine. Research is their main profit centre, but Gartner still gives away a remarkable amount of research and data for free. This is core to their moat strategy. Their free research gets spread as reference points for analysts and executives, thus further enforcing their trust and credibility.
Gartner’s most important content is their annual Magic Quadrants. These are market research reports that rank IT software by a series of proprietary tests. These reports validate which software is most trusted to potential IT buyers.
Essentially, companies use these reports to outsource the risk and complexity of procuring a new software. In other words it’s a CYA product (cover your you-know-what).
You can see the full list of Magic Quadrants here.
(source)
Why is it defensible:
Influence is power.
Gartner reports influence the FTSE 500’s IT budgets. That reinforces their credibility, which incentivises businesses to share data & insights with Garnter.
This gives them access to unique and proprietary data, which then feeds into their content thus creating a viral loop.
Outreach & Sales Hacker: The go-to community for sales professionals
What they do:
Outreach is a sales automation platform. It provides a tools sellers can use to automate outreach touch points (emails, calls, LinkedIn) to make sure they engage with prospects and customers at the right moments.
In 2018, Outreach purchased Sales Hacker. Sales Hacker is the home of the best content for tech sales professionals, including a blog, YouTube series, and podcast.
Post acquisition, Outreach kept the Sales Hacker brand independent. This allowed them to further fund and expand out the community in an authentic, non-commercial way.
What is their moat:
Sales Hacker is an engaged community.
They get community engagement through user generated content, discussion boards, and in person meetup events.
Outreach doesn’t interfere or engage with the community directly, but they enjoy a front row seat into the day-to-day hopes, dreams, and fears of their target customer.
Why is it defensible:
Outreach has extended the value chain beyond paying customers of the platform to anyone who engages with the Sales Hacker community.
With this captured audience Outreach can continue to layer on new products and services to meet their customer needs.
Sales automation platforms will come and go, but the community gives Outreach staying power.
Salesforce: Building credibility through Certifications
What they do:
Salesforce is the original cloud-based CRM. Salesforce was founded in 1999 and were the first players in the now $44.5B Global CRM industry.
The CRM landscape is competitive and, as you might expect from a 23 year old software giant, Salesforce feels more ‘old school’ to work with than the alternatives (all opinions are my own).
Despite that, Salesforce has remained a leader in the category with 90% of the Fortune 500 as customers.
So, how has Salesforce retained its leading category position for 23 years?
They’ve created deep moats using all 3 Cs:
Content: Salesforce publishes respected industry trend reports and research. They have a library of content that sales analysts and consultants reference to understand the trends in sales technology.
Community: Dreamforce is a legendary event in the industry. Every year 170K+ attendees ascend on the city of San Francisco for 4 days of Salesforce evangelism.
Certification: This is their golden goose. SFDC is hard, technical, and therefore an extremely marketable skill for a SOps to develop.
What is their moat:
Salesforce Certification is one of their moat tactics that gives them the most staying power.
There are 40+ Salesforce certifications, each ranging from $200-$400 for the average and $4.5K to become a Salesforce Certified Technical Architect (link).
An industry analyst estimates there are 77K professionals with 253K certifications (source).
These professionals have invested time and money in the ecosystem. They will become the platform’s best ‘salespeople’ because as the strength of the platform grows, so will their market value.
Salesforce funded training and certification for my Innovation & Technology class when I was in University.
Graduates entered the workforce with a marketable skill and Salesforce added more evangelists to their movement towards sustainable market leadership.
Why is it defensible:
Salesforce Certification is short-hand for employers to quickly understand if a candidate has the right skillset to work with their systems and it’s a clear, measurable way employees can show the job market their level and value.
Any new entrant in the space will have to overcome both organisational inertia and the team’s self-interest in continuing to work with Salesforce.
Many young SaaS businesses are going to be forced to grow up quickly in this current environment.
Time to start building moats 🏰