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The most durable companies have built a strong moat around their business.
While many things can be copied, we dive into some of the things that aren't so easy to copy - giving you a competitive advantage.
While many things can be copied, we dive into some of the things that aren't so easy to copy - giving you a competitive advantage.
Creators & Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.
With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.
If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.
[00:00:00] Toni: Hey everyone. This is Toni Holbein. You are listening to the Revenue Formula. In today's episode, we're going to talk about nine different kind of moats that you can build around your SaaS company or your product in order to be more sticky for your customers.
[00:00:14] Enjoy.
[00:00:18] Mikkel: Record. Important to remember that. So we are back in the Japanese nightclub.
[00:00:26] Toni: Yeah, it's um, it's Monday morning. We spent all weekend here. And only now we're hitting record. But also we're down, we're down a guy. Bart is, Bart is on
[00:00:37] Mikkel: He's
[00:00:37] off, lazy, lazy, and he was like, but I will be available, maybe the first week. I was like, go be off, go be off.
[00:00:45] Toni: Don't don't try and be a good boss, Mikkel. Okay. Okay.
[00:00:48] Mikkel: was like, okay, I'll slack you. Let's book a meeting.
[00:00:53] No, no, no, no, that's cool. I mean, today we have a bit of a list to go in front of us. We're going to talk about moats, moats today.
[00:01:03] Toni: Not everyone knows what a moat is, by the way, who is not English as a first language, which included myself, obviously.
[00:01:10] Really? So When you think about a medieval castle, they sometimes have this, this river thing around them, right? That's filled with water. And then they have this drawbridge that they kind of have in order to cross it. So this water thing around the castle, it's called a moat.
[00:01:33] Mikkel: Yeah,
[00:01:34] Toni: And, and the idea is in a SaaS world is, you know, it's...
[00:01:38] It's not impossible to jump over and scale it and then, you know, go into the castle, but it's quite
[00:01:44] Mikkel: it's pretty difficult Yeah, it's pretty also you have people on the wall shooting at you while you're trying to get over and if you can't swim You know,
[00:01:50] Toni: So, and that's the idea, like the, uh, and then sometimes people refer to bigger versus smaller moats.
[00:01:56] Right? If you just have, like, a little of a tickle, kind of, you know, go around your castle, it's like
[00:02:01] Mikkel: just put on
[00:02:02] Toni: they just, yeah, I say, and then there are moats that are really deep and wide and you kind of, you know, you basically just swim through
[00:02:10] Mikkel: Yeah, so it's a competitive advantage. It's a competitive advantage for sure. And
[00:02:15] Toni: it's so scientific all of a sudden. We were talking about boots and swimming and all of that good stuff and suddenly it's like, uh, Potter's five forces next
[00:02:24] Mikkel: uh, with a German accent, I love it. Um, no, but it is, I mean, it's an advantage you can preserve.
[00:02:29] At the end of the day, that's, that's what it is. And I was literally thinking, you know, you look at these massive unicorns out there. Been around for a while now. It's, it's, you know, been some time since, uh, Salesforce got going and they're still here. They're still growing. Even though there's so much innovation happening and there's a reason for it, obviously, you know, they have a ton of customers that, that are hard to replace, but they have a moat.
[00:02:52] Uh, and so it was one of those things. Often you get stuck in conversation around tactics. How do we just acquire more customers or keep a few more versus taking a more long term, you know, strategic. Professor view
[00:03:07] and, uh, and actually build an advantage,
[00:03:09] Toni: No, and many, many VCs are going to ask you that as, you know, if you're a founder listening, kind of many VCs will ask you like, well, what's your moat? Um, but also more, more tactically for, for the CRO types listening, it's more of a. Uh, how do you keep your retention rates up?
[00:03:26] Mikkel: Yeah.
[00:03:26] Toni: You know, this is, this is also, this is what moat breaks down to in the end. It's like, well, are those customers sticking with you or not? Right. And, uh, and let's, let's talk about that today.
[00:03:36] Mikkel: So we have nine. We're going to step through in probably 25, 30 minutes. So we better get to it actually.
[00:03:45] Toni: Let's start with the first one, Mikkel.
[00:03:46] Maybe you take this one. Lock in.
[00:03:48] Mikkel: So lock in, actually, so it's funny. We started with Salesforce, right? It's once you have that set up with a pretty decent size sales team, let's say you have, I don't know, 60 AEs and maybe a hundred SDRs.
[00:04:01] That's a lot of folks using that daily. If you've also built workflows into it, then you start to get to a point where you're pretty, pretty locked in. Actually, switching becomes a bit more difficult for you with all that data and all those processes you have set up. Right. Um, and that is certainly a competitive advantage.
[00:04:16] Also one for many companies, at least that you can build.
[00:04:20] Toni: So absolutely. So when, when, uh, I used to negotiate Salesforce contracts, um, we, we realized we will, why are you laughing about it? Um, we realized that basically in order to apply any pressure. on Salesforce, um, in terms of getting a better deal or locking in the renewal and, you know, favorable kind of rates. The only way you could do it is you have to start this process a year early.
[00:04:47] Mikkel: early.
[00:04:48] Toni: Because they just knew, they fucking know, right?
[00:04:52] If you are there 90 days, 60 days before the renewal period is up. They know that you have no chance in hell to pull the plug realistically. It's just not going to happen, right? Uh, but a year early, you do have a chance actually, right? And it's not about downloading the data and having an Excel spreadsheet or something like that.
[00:05:09] It's, you need to buy the other vendor first. So you need to kind of be fairly deep in those conversations. Um, then you need to start, you know, thinking, okay, how do you actually do the transition? You need to kind of get all the buy in going from all the VPs and all the blah, right? And all of that, and maybe it's somewhere down in the list, but all that sunk cost of, you know, and this is for the RevOps folks, of this beautiful Apex code that you built and wrote and, and, and using.
[00:05:35] All of that is kind of basically going away, right? So in order to build all of that back up on a different platform, you need to have some time. And that's basically what what we're referring to here is in, you know, the lock in of the usage and you know, all the different folks. It's gonna be really difficult to rip this out.
[00:05:50] Yeah. Right. And, um, uh, and that's what Salesforce has been just, uh, extremely good at.
[00:05:55] Mikkel: good at. And I mean, even if there is a vendor that provides, you know, a marginal net gain, uh, and have, has a leg up on Salesforce, you're still going to look at the implementation plan and go, yeah, that's, you know, we could be doing something else with that time.
[00:06:09] And so you, you end up being locked in.
[00:06:10] Toni: No, and it's, I mean, this is actually going to, uh, almost kind of, uh, one of the other pieces here on this list is, is generally speaking complex, um, implementations. And, uh, what I've seen is almost a reverse thing that happens to a degree. It's, um, uh, you know, in, in the mid market or in the SMB.
[00:06:30] If you asked for, payment for the implementation, if you're pricing it, it's, it's a detractor, right? People who don't want to like, ah, I don't want to pay for this integration, just want to have it, why can't I be going tomorrow? if you're on the enterprise... In many cases, charging for the implementation is actually a good thing.
[00:06:50] And the reason it's a good thing for them is that it's almost some kind of a insurance policy. That this thing will be rolled out. Or it's, it's gonna get rolled out. So one of the biggest risks that, you know, your purchaser, your buyer might fear, Uh, might have is, Hey, you know, maybe this is a dud and it's not going to work out.
[00:07:08] We're not going to get any adoption. It's not going to happen. by paying you a 50 or a hundred thousand dollars, which is not an unusual fee for implementation. that, that you, they basically buy a risk insurance or kind of insurance policy, right? So this is actually what they want to do. And then what this then means, uh, in, in turn, basically is this money.
[00:07:29] will be lost for sure, right? You spent that amount of money on the implementation. You could have done an internally as well but then you wouldn't have a dollar amount attached to it because it gave it to a vendor, there's now a dollar amount of 100, 000 attached to it. And if you now wanted to change that, it's, it's $100,000 sunk costs that are for sure gone.
[00:07:52] Um, and then obviously, you know, whether I do it internal external complex implementation is just, you know, then he used another 100, 000 internally as well to get it going and so forth. Right. So while it is a barrier to entry. At the same time, it's also a barrier to exit and a barrier to entry to someone else, So it's, um, you know, it's probably going to slow down your sales motion for sure. And, you know, we're not recommending that, you know, to take that path. But if you have taken that path or some of your competitors have taken that
[00:08:21] Mikkel: Yeah
[00:08:21] Toni: going to be difficult to rip people away from them.
[00:08:24] Mikkel: I think it's also a key point right, if you're, let's say you're in the BI space. Look at a company like Looker. It takes a long time to get to value. And that's where I totally get that there's an investment in consultants or that type of setup, because then you ensure that you actually get the value in the first place.. And I think that there are some considerations you need to take as a business..
[00:08:46] Toni: I'll, I'll grab the next one.
[00:08:47] Um, so, and this is very closely tied to the implementation piece. Um, it's, you know, it's, it's the whole topic around integrations. Um, you know, I think we would call it like embedding, uh, to a degree in the ecosystem, but if you have a piece of software that is not only pulling information from somewhere, but ideally pushing information to somewhere, then you're starting to be, you know, a little bit more entrenched and embedded in the ecosystem of that organization.
[00:09:16] And the reason why that matters, especially the pushing of information is that that might appear on a dashboard or on a spreadsheet. of someone that you don't have a clue that exists. And suddenly you have people that have a stake in you as a software staying because they need that cell populated every Monday at 9am with the newest number.
[00:09:38] Yeah. and you know, if you're pushing out information, making it easy to consume, using APIs or whatever. Easy consume that information, then it actually, um, you're, you're embedding yourself, entrenching yourself, uh, in different areas of the organization that then will simply rely on that number being there, which is kind of a really nice situation to be.
[00:10:00] You won't, you know what, you won't see it on the usage stats. You don't, you won't see it on your weekly active users or anywhere else. It's not going to show up any NPS. They're not going to leave a G2 review, nothing. Nothing, but it will be there. Uh, and if that number suddenly disappears, right? If that Excel spreadsheet suddenly says NA,
[00:10:18] Mikkel: Yeah. Oh.
[00:10:20] Toni: you will have, you know, that, that will cause a ruckus inside of those organizations.
[00:10:24] I
[00:10:24] Mikkel: I think it's also, there's going to be someone sitting there being responsible. Do I want to put my job at risk, potentially breaking things I don't know exist, to get the exact same piece of software in that does the same thing as like, actually, no.
[00:10:39] Toni: So this is so funny. So, um. I thought we were using this term only internally.
[00:10:43] So we had a Marketo instance, which we, it's very tool y kind of a conversation today, but we had a Marketo instance and, um, yeah, I mean, this was, this was with you Mikkel
[00:10:53] Mikkel: it was,
[00:10:53] Toni: Um, and we were basically referring to the Marketo instance as a pile of spaghetti.
[00:11:00] Mikkel: I did not build it. I did not build it.
[00:11:02] Toni: And basically. Um, the team was like, well, you know, if you pull on one spaghetti here, something else is going to break over there. And we just don't know. It's like, it's a whole knot of things and we don't know what's
[00:11:12] Mikkel: know it, they left also.
[00:11:14] Toni: but it was three generations of people building and leaving. Um, and we basically were left with either nuking it.
[00:11:20] Or, or, you know, trying to fix it. I think we ended up nuking
[00:11:24] Mikkel: Yeah, yeah,
[00:11:24] Toni: But if, if you think about, if you think about if, um, if your tool, you know, maybe it shouldn't be the pile of spaghetti, obviously, but if your tool is so complex and entrenched, it's going to be really difficult to just, you know, you know, pull you out of this.
[00:11:37] Mikkel: you the other piece is also just taking it back to the business considerations is, you know, you have to look strategically at can you build an ecosystem around integration and can you build the tactics to get customers to actually use that?
[00:11:48] Then you can start playing with an embedded strategy.
[00:11:51] Toni: strategy.
[00:11:52] to, let's just call it the Figma example, um, which is basically Expand Usage. Yeah. So, not sure how many people know this, but Figma is a tool exclusively, well, originally as exclusively for designers. Yeah. So, I would say product designers predominantly. I don't know, actually,
[00:12:17] Mikkel: I think, I don't know, I think in general, like Adobe, I mean the deal is going south by the looks of it. But, uh, you know, they're buying them for 10 billion. Yeah. So, could be something there because it will complement and obviously also
[00:12:28] Toni: No, it was, it was basically competitive to do, I think, Adobe Creative Suite or something like that. Right. And I think basically Figma is a tool for designers to do their design. Right. So that's what they started out with, hey, an easier, cheaper Adobe Creative Studio, because that's.
[00:12:43] Super expensive. I'm not sure if it's actually called Creative Studio, but whoever isn't in design knows exactly what I'm talking about and gets
[00:12:49] Mikkel: And please write Toni, correct him so he can learn.
[00:12:51] Toni: Yes. and what they did, uh, pretty successfully is they started out with, um, the design user. I mean, obviously, right.
[00:13:00] but through design. they got themselves pushed into more and more different teams, right? So I'm, I'm, you know, I'm the CEO here. Guess what? I have a Figma seat and I actually use it quite a lot, right? So I want to see the newest prototypes of the team. I leave comments. I, you know, sometimes I use it for investor demos and so forth.
[00:13:18] Right. I show them that stuff and, um, and basically Figma became much more than just a designer tool. It became a, you know, everyone who's even remotely interested in this started to have a seat, started to understand this, you know, move around and so forth. and guess what? You know, all of those designers, they themselves are even to a degree locked in now.
[00:13:37] They can't just go somewhere else because like the whole, the rest of the organization is relying on that piece of software right now, because they understand that,
[00:13:45] Mikkel: Yeah.
[00:13:45] Toni: kind of all of those, those costs of understanding that piece of software have been paid now. Um, and it's really difficult therefore kind of to push it, uh, and to, to pull it out.
[00:13:54] I
[00:13:54] Mikkel: think it's also a case of, can you actually add more value for all the users you have by bringing in another department on their account, right? That's, that's the superpower. And I think a company that does this extremely well too is Asana. Uh, obviously with the PLG motion and then builds up an account usually in one department, and then it's way easier for them to start building in the next, you know, the next department.
[00:14:15] And even I noticed they, they started moving up to the, the C level with, you know, management metrics and OKRs and strategic initiatives and stuff like that.
[00:14:24] Toni: So I think what Asana is doing in general, um, I see this, uh, more and more companies doing, Yes, they have a bit of a PLG motion and they get people to pay something, um, similar to SEMrush.
[00:14:37] So SEMrush. Um, and what actually happens is this is really only just their account pool.
[00:14:43] Mikkel: Yeah, yeah, yeah.
[00:14:44] Toni: So an account pool and you know, normal languages, you have a list in Salesforce with all the accounts that you want to sell to, and then you call into them. Right. But what those companies are doing, those, uh, and, and then plenty more examples, I think GitLab is doing the same thing.
[00:14:58] Um, they basically kind of get. Organizations in through their, um, uh, super low tier, kind of pricing, whatever, tier, whatever they do. and then they have an army of salespeople attacking only people that are already customers. And, uh, they themselves even don't refer to this, you know, it's not account management or anything like that.
[00:15:18] That is sales. This is, you know, straightforward fucking sales, what they're doing there. Um, and then it, it's much cheaper, right? You already have someone that has a relationship with this. You're so much more likely to pick up the phone when it says, you know, a company that you're a customer of, and then they're working themselves into those organizations, right?
[00:15:35] So it's, um, not sure why I'm talking about this right now. It's a bit of a tangent kind of situation, but basically kind of, that is a way to, uh, to get also to that, I know, higher usage, right? Asana was maybe bought by. I mean, it's always the frickin marketing team that buys Asana, I feel like,
[00:15:49] Mikkel: Yeah.
[00:15:50] Toni: right? But then you have this whole fight of, you know, which project management tool to use in the organization, because everyone has their own little project management tool.
[00:15:59] Mikkel: But I think there's two, there's two key takeaways, right? Two things that needs to happen here. If you go for a new department, you also need to realize it's a new use case. They might need new stuff that has to be put on the roadmap. And then you also need to look at your motion, right? Whether you run PLG like Asana or whatever in this scenario, can you run a sales motion on top to bring in that other team?
[00:16:19] Like new, new elements needs to be put in place, but ultimately it will build a moat for your
[00:16:24] Toni: I think
[00:16:25] you're right. I think what's being underappreciated here by, you know, just expand usage
[00:16:29] Mikkel: Yeah, it's easy.
[00:16:29] Toni: is really, it's, it's very similar to a new segment, a new market, a new whatever. This is a new department and a new department comes with its own new product market fit issues. You know, why would they buy it from us?
[00:16:42] How much do they want to buy it? You know, why would they use it, et cetera. All of these things would then need to be obviously, um,
[00:16:48] Mikkel: and it's also back, back to the project management example, right? If you have two departments, let's just say marketing and product, and there's a vendor specialized in marketing trying to displace that department, it's not gonna happen because you have two departments on there that gain benefits from both being there Anyway,
[00:17:04] Toni: So let's, let's go into the next one, which is, um, ecosystem and this now in the, in the, in the wider sense, not of ecosystem inside of an organization, uh, but, but basically kind of the partnership landscape. Yeah. Yeah. And I think some, some really powerful ones, and let's kind of, you know, see, uh, see where kind of that leads us.
[00:17:27] So at least one really powerful is HubSpot here. Uh, they have 40 percent of their revenues, I'm not sure if it's new biz only or not, uh, basically comes from their partnership
[00:17:37] Mikkel: Yeah.
[00:17:38] Toni: And um, a large, large amount of the partnership ecosystem is actually almost, you know, grassroots kind of stuff. It's, it's marketing agencies.
[00:17:46] Yeah. It's small agencies that specialize in marketing services and then, hey, you really need HubSpot to do this, or it's services that are, um, basically implementation rollout partners that then say, well, you could go for Salesforce or HubSpot, but you should really go for HubSpot. so they've, they've, they've achieved to build a massive, army, Of folks that are selling their services that are not on their payroll, you know, AKA a partnership team and some of those teams have made it their whole purpose.
[00:18:18] It's only about HubSpot, right? And I think HubSpot does extremely well, super early in the day, so I'm not sure if they're still doing it. but they basically had a, it's almost a, an e commerce like shop where you could, based on your location, find HubSpot partners that could help you with certain things.
[00:18:35] Then they had different certificates for those HubSpot partners, you know, platinum, silver, gold, wood, whatever. and, uh, and then, I think for each of them, they had their own landing page, which was obviously indexed. So whenever anyone was, uh, looking for that agency, uh, basically agency plus HubSpot came up as almost the first hit sometimes because of the...
[00:18:59] The massive, uh, you know, what is it,
[00:19:02] Mikkel: Yeah, ranking authority.
[00:19:03] Toni: of, of, uh, HubSpot itself, right? Uh, so, massive play, massive, uh, exposure and so forth. Um, and, and it was great also for those agencies because they then basically started getting inbounds through that channel. And then suddenly HubSpot was, uh, suddenly a lead gen for them. And so what do you do with a free quote unquote lead gen channel that really works for you while you keep building it out, you get those certificates, you make sure that this one page is awesome for you. We have some reviews on there. You have five stars ranking and so forth, um, which then further.
[00:19:39] Mikkel: And maybe even pay money
[00:19:40] sometimes.
[00:19:41] Right. And some of those exchanges, I believe Salesforce, they might be charging in some cases, you know,
[00:19:45] Toni: for the, for the app exchange, you mean? Yeah, yeah, yeah, yeah. Yeah.
[00:19:47] Mikkel: And, um, I think the other piece also, if you look at someone like Shopify, they also build a massive business with this exact, the same, uh, approach. They have vendors who only build software for Shopify.
[00:20:00] Basically you have a developing team, the team of
[00:20:03] Toni: they're, I think there are now companies that went public or like billion dollar
[00:20:07] Mikkel: I right. Yeah,
[00:20:08] Toni: only. Only basic building on
[00:20:10] Mikkel: I think it, was it Klaviyo? No, something
[00:20:12] Toni: think Clavo is like,
[00:20:13] they might
[00:20:14] Mikkel: We'll fact check it. , we'll fact check it.
[00:20:16] Toni: you know, Hey, alternative fact doesn't matter.
[00:20:19] Um, and this is, this is pretty nuts when you think about this. Right. And actually one, one little tidbit here, I think Shopify has only been, cashing in on, uh, on that for the last two or three years or something
[00:20:31] Mikkel: Probably. Yeah.
[00:20:31] Toni: They basically kind of build up, you know, a massive incentive for people to build on top of their platform.
[00:20:37] And only recently they started charging for this. Right. So, uh, 10,
[00:20:41] 000
[00:20:43] Mikkel: charging for this. Yeah, 10, 000 partners or something.
[00:20:47] It's going to be an uphill.
[00:20:50] It's not going to be enough to wear
[00:20:51] boots.
[00:20:51] Toni: wear boots. Let's do a boring one
[00:20:59] Mikkel: I'm just wondering which one you're gonna pick now.
[00:21:02] Oh, okay, good.
[00:21:04] Toni: good. Features that a specific segment really needs, uh, despite them hating you, you know, otherwise, they cannot switch away, because all of your shitty competitors, they don't have SOC 1 type 2, they don't have, uh, two factor authentication, they don't have the right, um, GDPR stuff in place, they don't have the right disaster recovery, they don't have the right infosec, they don't have the right boring stuff in place.
[00:21:39] Um, and especially if, uh, the buying decision sits with someone that really cares about this, like IT and so forth, they will just, yeah, you know what? Uh, everyone hates it. It does work though. The buttons are there. You can theoretically do it. Um, but the real reason we don't want to, you know, jump away, it's like, Oh, you know, this checkbox is missing.
[00:22:04] Um, on the, on the, on the SOC 2 form from this other cool vendor. So, uh, no, sorry, we can't. and that is kind of a type of, of, of moat. That is fairly difficult to just build up over time, right? Obviously you can get a SOC 2 certification, obviously you can get, you know, an ISO 27K, whatever. You can get all of these things, but I'm telling you, it's going to take a long time.
[00:22:27] So you're talking upwards of a year to actually have the certificate in place, right? Kind of, if you start today, it's going to 12 months to get the certificate.
[00:22:36] And, uh, it's going to be, you know, substantial investments on your side. You need someone to run this project on your side. And this is not just a project manager.
[00:22:46] This is like an InfoSec professional that knows how to do that. You might need some additional consultants and much even worse. You might need to change things in your organization in order to comply. So depending on the size and the setup and stuff, suddenly you need to have keycards everywhere. You need to have different, you know, approval processes.
[00:23:04] You need to have a different, security setup on your R& D side. You need to have different, every time your team wants to hit, you know, the release button. They need to jump through a series of hoops before they're allowed to do it. Because basically kind of all of those, you know, and that makes sense.
[00:23:19] It's quality assurance and security assurance, kind of all of those different steps, all of this makes sense, but only few companies that know exactly what they're doing for whom, because they're so old, because they know whom they're selling to, can afford this delay. If you want to, you know, iterate and be fast on all of that stuff, it's.
[00:23:37] That delay is just gonna kill you.
[00:23:39] Mikkel: I also, I heard a fun bit from Jason Lemkin and he was like, well, imagine that RFP you get where you usually have a lot of no's, especially when it comes to security and all that stuff. Imagine if all of them were a yes, right? That's actually the scenario. And it's, again, this is a strategic commitment as a business, right?
[00:23:56] That you can make that, you know, if someone tries to, enter your territory. It's going to take them quite a bit of time. You're going to see them coming
[00:24:03] Toni: So, on the newbiz side, kind of this whole, um, you know, this information security stuff? So the way those, those folks on the privacy infosec side, on the purchasing side actually operate is they have a, you know, a 30 page questionnaire. and it always starts with, do you have SOC 2? Yes or no? Do you have, 27K?
[00:24:29] Yes or no? are you in the process of getting it? Yes or no? If you, if you check yes on one of the first things, it then says, skip all the other 40 pages. And, and, and the thing is, the thing is, if, um, there's this purchasing person, you know, what would make their lives easier? Do you think they enjoy going through all the fucking 40 pages afterwards?
[00:24:55] They just want to see the, you know, they, they pray to God that one of those check marks are there. Uh, and if it is, they're like, whew,
[00:25:01] Mikkel: Maybe pile.
[00:25:02] Toni: let's, let's, let's, let's buy this, let's buy this software, please, right now. Um, and I know about, uh, you know, some InfoSec professionals that basically when RevOps comes around the corner and wants to buy a cool new tool, They first of all, like, Oh, and then they go on the website, they furiously scan for the, you know, ISO, uh, certificate or the SOC2 certificate.
[00:25:22] If they do find it, they're like,
[00:25:25] you know, actually, you know, maybe we can do this. So it's, it's not only, it's not only lock in, but it's also on the, you know, uh, the, the newbiz buying side where this is extremely helpful.
[00:25:34] Mikkel: You
[00:25:36] Toni: Do you know what, why don't you talk about brand?
[00:25:37] Mikkel: That was one I thought you were going to say, boring. Um, yeah, I mean, so, we've, we've talked with a few folks here actually about brand, uh, Udi Ledergaard from Gong,
[00:25:46] Toni: Udi
[00:25:46] Mikkel: was one of, he talked a bit about the power of how it can shorten your sales cycles.
[00:25:50] Effectively, right? He literally had a, was the VP sales or the CRO, uh, after they did the, um, the NFL, yeah, the Superbowl ad saying, you know, the perception of us has fundamentally changed and we can just feel it in every conversation. And I think that is in part the power of brand that you have a reputation that perceives you.
[00:26:09] Uh, and imagine a scenario where you enter into a sales conversation and the person on the other side immediately trusts you even before you entered the call. That is a massive power. And so this is a moat. Um, that is pretty difficult to replicate. Uh, you can't just go out and, you know, with SOC 2, you can start the process and get there.
[00:26:26] Right. With brand is a little bit more elusive actually. Right. And there's a reason why you're seeing folks like, uh, Mark Benioff and Elon Musk very, you know, I think intently have built their personal brand and it becomes a moat for a lot of the businesses. We talked about, Ryan Reynolds, leveraging his personal brand to build up businesses as well.
[00:26:46] Right. So I think it's just to say there is a business case here. It is really hard to imitate. Sure, companies can build up a brand, but fundamentally, it has to be different from yours as well.
[00:26:58] Toni: It is hard to imitate and replicate. Right. So that's where brand obviously kind of works out well. it has impacts on the, um, on the sales cycles piece, right. That you just mentioned, there's also something around people are lazy.
[00:27:11] Mikkel: Yeah.
[00:27:11] Toni: They want to, they don't want to go through the 10 options. They want to, you know, the winner, maybe the number two.
[00:27:17] And then it's like, oh, boring. Um,
[00:27:20] Mikkel: No, it's like, do you get fired?
[00:27:21] It's the old thing. Do you get fired for buying Salesforce? It's like, no.
[00:27:24] Toni: and the same, the same on the way out, right. We were, uh, we were considering canceling Gong actually, um, going with one of the competing vendors. And we tried out, uh, by the way we did, um, but we're actually pretty happy to go back to
[00:27:39] Mikkel: Yeah.
[00:27:40] Toni: gong. Not because it's not because it's like everything, you know, everything kind of works out and so forth.
[00:27:45] There were some rational ways of kind of how we made the decision, but I do feel the whole decision making was a bit tainted by gong just being the fucking player in this, in this field. Right. So, and I think, um, uh, overall, you know, if you are able to build up a strong brand, kind of land this. It's gonna be, this is one of those moats that, that other people will just have a really hard time, um, figuring out.
[00:28:07] Mikkel: Yeah.
[00:28:08] Toni: I think the, the most straightforward moat actually, um, is really around, um, long contracts.
[00:28:16] Mikkel: Yeah.
[00:28:17] Toni: So basically, legally locking people in for multiple years. and the, the, the opposite is again, it's a little bit like with this... Uh, easy implementation or complex implementation. It's probably going to be harder to sign this deal to begin with, but once someone then is with you three years, uh, on a legal basis and, and you know what, don't get me wrong, if you have SMBs that you sell to, and, and you do get someone to sign on for two or three years, there's a high likelihood that they just tell you, go, go F yourself.
[00:28:47] Uh, I'm not going to pay this next invoice, but if you're talking to a company that is mid sized, large, or even like really large. Whatever is written in this document, they will, they will, whether or not they use this thing, whether or not they hate you, it doesn't matter. If the contract says you're bound for three years and you haven't actually breached it, they will pay that bill, right?
[00:29:06] Um, and, um, that's, that's one of those ways that then also is going to make it really difficult for the person using it or part of that, you know, potentially different decision making process to just go out of it. It's like, well. There's no way. I will need to keep paying for this thing for another two years.
[00:29:24] There's no way around this. So despite me hating this a lot, I basically am paying double. Uh, to kind of get this other thing, and that needs to be a massive benefit for you to, uh, for that, for that person to make that jump, right? And I think it's going to be difficult to achieve. Uh, so really just long contract terms, it's, um, uh, I think especially in long implementation, um, difficult rip and replace kind of environments, I think it makes sense on a, uh, in the newbiz motion to kind of push for that.
[00:29:58] Uh, to simply say that, you know, listen, we're going to, we're going to have this implemented in six months. Do you really want to consider then another six months to kind of replace it and put something else in that doesn't make any sense? Typically we see our contracts are three to five years. We know with you guys, let's go maybe only for three,
[00:30:16] Mikkel: and then I think some of the nice guys, quotation marks, they do an out clause for you at that, you know, early stage, but then it goes.
[00:30:23] I also heard a cool thing from, uh, Dave Kellogg on specifically long term contracts, which is, you know, do I want to do an annual versus a three year?
[00:30:33] I can roll the dice once every three years or yearly, you know, take that into account as well that retention side You still got to deliver the value obviously right for them to renew at year three But it's just there there is upside there
[00:30:46] Toni: Yep. Do you want to go for the one that is difficult to explain?
[00:30:52] Mikkel: We'll just edit it out that's fine I can we can do some overdubbing or something that's fine Economic moat is the other Right. So literally you having a stronger purchasing power than anyone else in the market. That is a massive superpower. Think about Walmart. They use this a Incredibly well to buy in bulk, you know a product that people wanted put it on sale and still earn money on that, right?
[00:31:20] Toni: So it's, it's really, it's really trying to leverage the economies of scale here to a large degree. You're the, you're the, by far the market leader, you own 60, 70 percent of the market.
[00:31:29] Um, and whatever you're buying, you can buy at a cheaper rate simply because of, you know, that, that massive scale. and you are then able to hand that benefit, that economic benefit, you're able to hand that through to the end user. Which is therefore getting the best deal. Kind of that's, that's the Amazon, that's the Walmart kind of example.
[00:31:49] Um, I think there are similar cases also in, uh, SaaS. And up until previously or recently, there was that same also with heavily funded organizations, heavily funded teams. It's not that they found, um, a specific economic benefit that they were handing through. They just could afford to burn so much more cash on each individual acquisition of a customer versus someone else, right?
[00:32:13] So this was a, an economic moat to a degree. Um, and, uh, and similarly, so they could also afford to play in areas and fight in spaces, um, that were clearly owned by someone else. So their win rates were super low. Their efficiency was super low. But they could still play there and make life harder for the other side, uh, you know, push their CAC up, push their win reigns down, um, and therefore almost, you know, pressure then someone else into, into a worse position until they maybe build up momentum in that space as
[00:32:44] Mikkel: well.
[00:32:44] Toni: right?
[00:32:45] Some of those tactics, they don't work anymore because it's just too expensive. You can't do this. Um, and usually people don't have so much more money laying around on the balance sheet in order to deploy it like this. But that's, um, that's one of those economic moats that people have been able to build up, um, in the past, at least on the funding side.
[00:33:03] And then, you know, in the future, also in terms of size and economy of scale,
[00:33:06] Mikkel: also in terms of size also the opposite will obviously be that you're way more efficient. with your costs, right? And, and we've talked with Pablo Dominguez about, for example, that, so it's, it's one of the perceived boring topics, but if you can be way more efficient in a legal process, and instead of having a team of 10, you can have two.
[00:33:23] You
[00:33:24] Toni: you said efficient, legal and process in the same sentence.
[00:33:27] I think everyone fell
[00:33:28] Mikkel: I don't, I'm not, I'm also not a marketing person anymore. It's very clear. So we're not talking about fonts or anything or anything anymore. So we've talked about, I was going to say fonts, moats. We've, we've talked about moats.
[00:33:42] Toni: First of all, we, we told everyone non English speaking what a moat actually is, uh, because that was pretty important and then we logged, uh, went through like nine different ones, kind of lock in, You know, Salesforce does this really well, uh, embedding yourself with integrations, pushing and pulling data, maybe have complex implementations in general in order to make it harder to join, but also harder to leave, expand usage beyond the initial team that you sold it to in order to be more sticky, uh, maybe build up an ecosystem of different partners.
[00:34:12] which they then be successful on, you know, for you and that, that creates extreme power, uh, building something that we could, would call an economic moat, really simply having superior purchasing power because of economies of scale that you can hand through. No one else can do that. Build out a set of enterprise features, especially SOC to Inf, uh, ISO 27K and so forth.
[00:34:35] Brand, brand, brand, brand, brand. That's itself is like really difficult to replicate. and can, Act and help as a smoothing lock and effect around you. And then the last one, the most straightforward and you know what? Screw it. Just lock them in for three years.
[00:34:53] Mikkel: Ka pow. That was it. Thanks, Toni.
[00:34:55] Toni: everyone. Have a good one. Bye bye.
[00:34:57] Mikkel: Bye. Just lock them in for three years.