Compounding Economic Moats for Technology Companies
Mind the Moat, a 7 Powers Review
Creating a business is easy. Creating differentiation is not.
If you build a moat, you control market dynamics, pricing, and you have a first advantage over anybody else that tries to replicate what you do.
Here are the seven ways you can build a moat around your business.
Economies of scale
If you have low marginal costs, you benefit from scaling.
Wal-Mart has been a company that was one of the first to understand economies of scale. Their slogan is “Save money. Live better.” “Every day low prices” is plastered all over their stores, and the only reason they’re able to charge customers less than other department stores is economies of scale. They leverage volume purchases to reduce purchase costs from vendors, and they then pass on those cost savings to customers. Over a long-enough timeline, this also gives them deeper relationships with different vendors where they buy their loyalty, and they don’t offer the same bulk discounting to their competitors.
Economies of scale is now more popular in the software world than it is in the brick-and-mortar world.