Defensibility Adds the Most Value for Founders - James Currier  ## Metadata - Author: **James Currier** - Full Title: Defensibility Adds the Most Value for Founders - Category: #articles - URL: https://www.nfx.com/post/defensibility-most-value-for-founders ## Highlights - The key to understanding this more broadly is that nearly all of the massive returns to you and your investors — the 100X or 500X returns — come from businesses that have long-term defensibility. For early-stage investing it’s the big hits that drive returns. So having a line of sight to defensibility matters, even for early-stage investing. ([View Highlight](https://read.readwise.io/read/01hybq2sakkj3s2yz5gjz670x4)) -  ([View Highlight](https://read.readwise.io/read/01hybq876p3e62yh8t3vebw3x5)) - **Speed.** Going faster is a significant advantage in the short and medium term. It’s the No. 1 competitive advantage every startup can give itself. At NFX Guild, this is one of the critical things we screen for in our Guild members. ([View Highlight](https://read.readwise.io/read/01hybq9v9ebtpm03t4pm2vs93d)) - **Capital.** Like we’ve seen with Uber, Square or NextDoor, the ability for a team to raise more capital lets a company hire faster, buy market share and move to set up real defensibilities. Further, raising a lot of capital helps scare other investors from investing in your competition. (It can also lead to errors in judgment that hurt the company, but that’s another story.) ([View Highlight](https://read.readwise.io/read/01hybqa9np9erq3fdn2t7h8kx8)) - **Unique Team.** Either technical talent or having unique insight into a customer/market. ([View Highlight](https://read.readwise.io/read/01hybqc1y4v0dar80p1dp2g1r8)) - **Content.** Companies like Zillow, Yelp and Facebook were places for users to get unique content at launch or shortly after launch. ([View Highlight](https://read.readwise.io/read/01hybqccj1wafj4p9116mxte94)) - **Buzz.** When companies like Slack or Meerkat capture the elusive imagination of influencers in tech and media, it makes it easier to fundraise, hire talent, get press and get noticed by customers. ([View Highlight](https://read.readwise.io/read/01hybqd8xawd5kergz6h5bbgjk)) - **Relationships.** People do matter. Having a personal advantage with a customer can be an advantage for a time against competition. ([View Highlight](https://read.readwise.io/read/01hybqdh83wzzccdvnznfqshe0)) - **Silicon Valley.** Companies located here have a competitive advantage because of access to capital, press, talent and creative insights from the dense network of people working on similar problems. The numbers prove it. ([View Highlight](https://read.readwise.io/read/01hybqdy0xgnps4qkxx0k5wbay)) - **Patents.** These can apply, but we’re seeing them apply less over time in software and the digital world. ([View Highlight](https://read.readwise.io/read/01hybqe61gt8n572taq8fvzyn3)) - Real value creation If you build a business with good competitive advantages, your value grows linearly as you grow revenues. That’s good. But if you’re able to move past competitive advantages to true defensibility — to really being able to protect your business from competition — your value grows exponentially. ([View Highlight](https://read.readwise.io/read/01hybqf0zhp31axsbcv55mcms7)) - **Economies of scale** (example: Amazon). When you get bigger, a host of advantages accrue to you. More users means more volume, means you can get cheaper prices from suppliers, means lower prices for customers, means higher conversion rates, makes your advertising more effective than your competition, etc. The numbers all move in your favor, and math is hard to compete with. ([View Highlight](https://read.readwise.io/read/01hybqg6z7bpnf922f30negs2d)) - **Brand** (examples: Booking.com, Google). With brand, a certain company can stand top of mind when we think of something we need, like [booking.com](https://booking.com/) when I need a hotel room. Priceline, the owner of Booking.com, spends more than $2 billion per year in advertising to make sure that’s true. Further, people come to identify themselves with brands. People who want to associate with Apple products [will not comparison shop](https://www.youtube.com/watch?v=FL7yD-0pqZg). Those psychological barriers make it very hard for competitors to break in. ([View Highlight](https://read.readwise.io/read/01hybqh0cpfpe1bcccytkpb0r3)) - **Embedding** (examples: Workday, Oracle, SAP). Embedding works when you integrate your software into a customer’s operations so the customer can’t rip you out and replace you with a competitor. This is obviously more prevalent when customers are organizations, not individuals, and is typically accompanied by a direct sales force to drive the embed. ([View Highlight](https://read.readwise.io/read/01hybqhbcb7jr28z7v4bn71c9g)) - **Network effects** (examples: LinkedIn, Alibaba, Craigslist). A network effect is when another user makes the service more valuable for every other user. Once your company gets ahead, users won’t find as much value in your competitors’ smaller networks. ([View Highlight](https://read.readwise.io/read/01hybqht20pgm6yv1yk16ff10n)) - There are five major types of network effects. Direct (LinkedIn, WhatsApp, Facebook); two-sided (eBay, Craigslist, Microsoft, iOS); data (Google Maps, Waze); tech performance (BitTorrent, Skype); and interpersonal (Slack, Apple). ([View Highlight](https://read.readwise.io/read/01hybqjegmth500rp58qtkh9qh))