Economic moats, marketing wins
During fundraising, investors always ask questions about differentiation. They want to know what makes your business defensible from competition. As an investor, you want to deploy capital where it has the best chance of success. Eventually, delivering a positive return on a risk-adjusted basis. If you’re not familiar with the concept of economic moats, then keep reading.
According to ThoughtCo., “a castle was a fortress built to protect strategic locations from enemy attack or to serve as a military base for invading armies.” Moats were constructed around castles as a highly effective defense mechanism. In fact, one of the only successful ways to overcome moats was using portable bridges. A tactic which is cumbersome and time-consuming.
Thank Warren Buffet for popularizing the term economic moats. An economic moat is a distinct advantage a company has over its competitors that allows it to protect its market share and profitability. There are several sources for moats including intangible assets, network effects, cost advantages and efficient scale. However, one of my favorites is switching costs.
Switching costs are the costs that a consumer incurs as a result of changing brands, suppliers or products. It’s important to note, these costs aren’t only monetary. There are also psychological, effort-based, and time-based switching costs. Therefore, there’s a lot of ways to approach this in your strategy.
There are several common switching costs. You’re probably familiar with most of them from daily life. First, there are convenience costs. Think about changing banks, especially before you could do everything online. Annoying, time-consuming, and often never worth the effort.
Another switching cost is emotional. When you hold an account or have a relationship with a financial advisor over several years, you’re likely to have built trust and rapport. It’s hard to end a relationship when there’s an emotional connection.
Many types and tactics of switching costs exist and I encourage you to dig deeper. In addition, other forms of economic moats may be more beneficial depending on your business model and industry. For now, here are some of my favorite switching cost examples in the real world:
Airline Loyalty Programs. While I have reward accounts at all the major airlines, I’m a Delta stan myself. Fun fact, loyalty programs often make more money than the airline’s flying operations. Loyalty programs are great for increasing switching costs, especially when the product or service is commoditized and in-demand. For airlines, they have the ability to sweeten the travel experience while also providing a cost-saving rebate. Ultimately, while you may collect points when flying any airline, it’s hard to build up loyalty status at more than one.
Status Brands. Undeniably, luxury and status signaling brands have higher switching costs due to intangibles like branding. Apple is a great example because it benefits from both emotional and product compatibility costs. Apple has created an enormous cultural bifurcation with its blue versus green iMessage tactic. It also built products that work best when they connect and perform within the same ecosystem. Once you’re in, it’s hard to switch out.
Economic moats exist everywhere. They are much harder to establish as a young business. Therefore, it’s smart to keep them in mind as you grow and scale. Choosing the right strategies and building them into your growth plan ensures a higher probability that your business can defend itself from competitors along the way.
Thinking different vs. being different
Skittles once staged a broadway musical instead of advertising during the Super Bowl. An e-commerce company renamed a town in Oregon for $110,000 and some small favors. That company sold to eBay for $340 million. Oh, and Ikea encouraged women to pee on their ad. It was a free pregnancy test and a coupon!
Thinking different is a specific discipline. Being different is an entire world apart.
Brainstorming is a fun activity. You come up with all kinds of outlandish ideas for your brand and products. It’s exciting to sit in meetings and a pace rooms talking and thinking through concepts.
If you’re lucky, you land on something brilliant. The ad above is to raise awareness around less invasive forms of prostate cancer screening. The campaign features a series of armpits. It feels NSFW but it’s not. Many men avoid these traditional screenings, and Prost8 is providing them another way with a cheeky illustration.
Unfortunately, the gap between our ideas and their execution can be miles apart. Often, this is for good reason. Ideas can be cost prohibitive, unfeasible, not on-brand, and controversial. However, the problem still remains. Brands want to differentiate themselves and their products from the competition.
Thinking different requires two important things: 1) An imagination and, 2) an ability to ignore the competition. Understand, you’re competing for your customer’s attention; short and spread thin. If you have in-depth knowledge of your customer, you’ll be able to let your imagine run wild.
While thinking up great ideas is difficult, I think follow-through is equally challenging. It’s easy to think, we have the idea and budget, now all we have to do is produce the thing. While seemingly straightforward, making a bold idea into reality creates all kinds of obstacles. Business leaders may change course to avoid risk or controversy. Too many cooks in the kitchen can water down the creative. Production may not be supported with an appropriate budget for the project scope. Lots can happen.
Early stage startups have a big opportunity. When you’re small, agile, and unknown, risks take on a different character. Here’s a giant reminder in case you’re trying to build something special and different. Don’t just think differently, be different. Remind yourself that you’re not competing with other brands, you’re competing for your customer’s attention.
You don’t need to take baseless risks putting your company in jeopardy. You do need to have a playful spirit and lean into the fact that we all have short memories. Whether it’s a nationwide ad campaign, or something much smaller, don’t be afraid to make your ideas reality. When there’s a chance to do something bold, just do it.
Get scrappy AF
There is never enough money. You can raise a million dollars for your business and still be out of cash within a year or less. Outside of product development and engineering, marketing is usually one of the biggest expenses for most companies. That’s why being scrappy as f**k is the key to small business marketing.
Small Business Marketing = Scrappy
Let’s define scrappy marketing: doing more with less. Producing the best you can with the least amount of resources possible.
Now, let’s look at my favorite benefits of scrappy marketing for small businesses:
- Gives yourself permission to prioritize completion over perfection.
- Find out what works and what doesn’t quickly and cheaply
- Learn by getting your hands dirty
- Move more quickly than your competition
Shedding perfection is a giant unblock. I can feel the stress dissipating as I remind myself that nobody cares that it’s perfect except me. I feel like your next question will be, “This is great Justin, but how do I apply this?”
Easy. Here’s a small business marketing idea that shouldn’t cost a thing! Embrace the A/B test. Both Semrush and Neil Patel have some great guides for beginners. I love A/B tests because it’s an opportunity for my customer to vote their preference.
Real-Life A/B Testing
Story time. My partner was shopping at her local Trader Joe’s. She came across two new sauces, one garlic and one basil flavored. Out of curiosity, she decided to look at the ingredients for both sauces. Surprisingly, the sauces were exactly the same. We both have allergies and dietary restrictions, so I know she was thorough.
The sauces had the same ingredients and nutritional values. In fact, the only difference was the packaging design. Human psychology and behavior is fascinating isn’t it. It makes you wonder how many other people shared this experience and left confused.
Clearly, Trader Joes was product testing using a simple A/B test in their stores. Will customers prefer to purchase a garlic or basil sauce? Don’t get too hung up on the flavor. If this is confusing, think about the toothpaste aisle at your local drug store. They all have various labels smacked on the front next to the brand logo: Whitening, Sensitive, Tartar Control, Gum Health, and more.
Unlike Trader Joe’s, the basic ingredients for most toothpastes are exactly the same, and then additives are layered in to support the features they promote. It’s not a perfect A/B test. Though, I would bet there’s a reason there are 20 different options littering the shelves instead of an all-in-one toothpaste killer for double the price. It’s because testing revealed big brands like Crest and Colgate could capture more of the market by providing differentiated product for each persona.
Marketing Ideas for You
You can use examples from big business and apply it for yourself.
For example, you can use A/B tests to find the right approach on your brand messaging and tone of voice. The scrappy method would be to use a free version of Convertkit or Mailchimp. You can A/B test subject lines or body content of an email newsletter. If the features require a subscription, then send emails one-at-a-time to a small group of test groups. Use the free version of Hubspot to which people opened and clicked links. Compare the amount of opens and clicks for each group.
Another example, if you want to see what kind offer will be more exciting try A/B testing your opt-in form. Have one form that offers 15% for the customer’s first purchase, and another that offers 25% off. Instead of paying to drive traffic to your landing page, use social media instead. Creating content isn’t necessarily as efficient, but it has other benefits like SEO and engagement. Plus, it’s free!
Small business marketing means being scrappy AF. Use free tools whenever possible including software trials and Google Sheets to record results. Drive traffic using creativity and social media instead of digital ads. Learn how to do things yourself before spending the money on experts and agencies. Focus on getting things done instead of perfect.
It’s official, JustinBridges.com
After much internal debate, I reached a conclusion. The site is no longer called Founderside. I still have some backend things to transition, but all in due time. It only makes sense to consolidate my approach in this chapter of life as a marketer and creative.
My old properties still exist and are easy to find, such as my photography. Now, I have the proper real estate to share my thoughts and opinions about a space I’ve become fascinated and obsessed over: early stage startups. If you haven’t subscribed to my newsletter, make sure you do. You won’t want to miss out on my musings around marketing, startups and hot takes.
Substance marketing
In Issue #297 of The Hustle newsletter, they unpack The Failure of the Domino’s 30-minute delivery guarantee. It’s a fun read. One paragraph especially caught my eye. Domino’s CEO Thomas Monaghan talks about the delivery guarantee in contrast to their marketing investment. Below is the excerpt from the newsletter:
As he described in his autobiography Pizza Tiger, he considered the 30-minute guarantee to be part of a “defensive mindset.” Instead of spending heavily on marketing, he believed that Domino’s would grow its base by consistently meeting customers’ expectations.
The Hustle
Think about marketing investment and the intrinsic value of a product or service as a sliding scale. For instance, if a product is crap, the investment in growth may be too costly. Moreover, you may need to rely on scammy tactics and false advertising which is unethical.
On the other end of the scale, you have a product offering amazing value. It fits seamlessly into your customer’s life. Hence, giving a majority of its growth momentum from word of mouth and referrals. Therefore, marketing spend can be focused on maintaining awareness or refreshing the brand. There is no need for the typical exercise of coercion or bribery in exchange for a purchase.
Of course, most products and services are somewhere in the middle. I love the Monaghan excerpt because it’s a great reminder. Consistently meeting customer’s expectations is value-driven marketing without the price tag. Often, marketing departments are tasked with polishing and shining whatever product is in play. However, effective growth requires much more than powerful ad campaigns, influencer partnerships, and referral schemes.
Are you consistently meeting the customer’s expectations? Are you providing consistent value with each purchase or interaction? All marketing is short-lived if it’s not backed with substance.
Messy beginnings
Early stage startups can be chaotic. Many good reasons exist to explain this reality. The uncertain slog towards product market fit, or PMF. The pressures of reaching certain moving milestones in an effort to satiate potential investors. Additionally, the struggle of plugging talent gaps by hiring or finding external vendors when those skills are missing on the founding team.
There are numerous facts and opinions about why startups fail, and why it can be a Herculean-like epic at the beginning of a young company’s journey. I don’t dwell on the failures as much as learning how to ward off trouble signs on the horizon.
One of the key topics I cover in my newsletter is about applying constraints to processes. I argue that without constraints, it’s hard to understand what’s a valuable set of activities that deserves focus. Even during the bull market years of startup valuations, the concept of throwing ideas against a wall to see what sticks has always been heralded as a recipe for disaster.
In fact, this behavior can arise from the tension between internal and external expectations. It can be hard to achieve 20/20 vision if there are no constraints, such as OKRs or a unified understanding of expectations and priorities.
I always love this question posed by Rory Sutherland, “What information would be useful to know?” It’s powerful because if you have a goal and a list of restraints, you have taken dramatic steps towards testing your hypothesis inside early stage startups, let alone big business.
GOAL = (ACTIVITY * n) – (CONSTRAINT * n)
There may be some fault in this hastily constructed equation. The major point is that in most cases we are simply solving for what activity will produce the results we desire. Often, this is where the spaghetti approach takes hold. However, if we zoom out and ask Rory’s question one more time, then we can begin to start using data to guide us towards a smarter, more efficient list of activities to prioritize.
It is true that early stage startups start at ground zero for data. Few users have tested or tried their product or service. There may not be a ton of money to increase awareness or drive user conversion by using performance media. However, these are constraints with solutions. A better question at early stage startups may look this: How can we generate early signups for our app when we don’t have money to invest in ads? This allows us to constrain brainstorming and ideation instead of having a free-for-all.
GOAL = generate early signups
ACTIVITY = X ‘variable’
CONSTRAINT = $0 or no money
Now, all that’s needed is a new set of specific and constrained questions. Can we leverage our personal networks to gather early users? Can you use ChatGPT to help us write organic content to drive traffic to our website or post on social media? Can we partner with any businesses or organizations that might see utility in the use of our app long-term? We rank these suggestions by feasibility, expected return, timeline, and resources needed. Then, it’s off to the races.
When you have great questions, you can create great tests which are a breeding ground for data collection. Early stage startups have to remember the pressure will never go away. It’s inevitable that the bar will move on the next milestone. Unfortunately, marketing strategies and tactics that worked yesterday aren’t always replicable tomorrow. Don’t let fear and pressure force you into messiness.