When I flew home yesterday from Charleston, while most people were seeking relief from their sunburns and reminiscing about their vacations, I was delving into The Wall St. Journal’s profile on Tracy Britt Cool, an ex- Berkshire Hathaway star. Mrs. Cool’s new company Kanbrick invests in businesses with $10m - $50m in revenue. What does Mrs. Cool look for when investing in a company? People and moats.
At Bridge, we’re reading Jim Collins’ Beyond Entrepreneurship 2.0. Mr. Collins starts his book by saying that people are the most important part of a company. When you buy a young company or start working there, the most important ingredient is the team of people—even more important than the company's idea or its funding. I think that Mr. Collins does a great job of stressing the importance of people by driving home the point: “You have to get the right people on the bus.”
I’m on page 281 of the book, and thus far, moats have not been mentioned. This leads us to ask: what are competitive moats? In our space, moats are things that require a big lift for a competitor to replicate. Think of Amazon’s nationwide (global?) shipping service, its Alexa voice system, or Prime video services. Shopify has its ecosystem of app developers, and Etsy is a globally known marketplace for handmade goods. What Xerox was to copying and Kleenex is to tissues, Etsy is to hand-stitched, Covid-19 face masks. Etsy’s stock rose 900% during the pandemic. Moats are A-W-E-S-O-M-E. (If I wanted, I could probably buy that mantra stenciled on a t-shirt on Etsy.)
Last week, we read how Uber was going to let people hail NYC taxis via the Uber app. This week, we read that Uber in the UK is letting people use it to book train travel. What’s the purpose? It may say it’s to help people, but these moves get more users on its network, hurt Lyft, boost revenue, and widen the moat.
Companies that rely on a network of users inherently have a great moat. Think of all the companies that tried to compete with Facebook, including MySpace, Google+, and Apple's Ping music community. Before those, there was Blogger and LiveJournal. Even if you have Facebook’s source code, you can’t replicate its success. The value is in all interconnected users. Microsoft bought LinkedIn and has seen a massive return on its investment on account of this principle: a network's value increases exponentially with each additional user.
What’s our moat at Bridge? Is it our e-commerce engine? Our review software? Our registry software? No, since most of that can be replicated. Our moat is all the members that are connected to each other and syncing products. Yes, we are an e-commerce platform, but there are other e-commerce platforms. What’s more important and what differentiates us is: we are an e-commerce community. We connect the retail industry, we just don't service it. The community we’re building is also our moat. A way to measure that community is not just the number of members, but the syncing between them. About one thousand retailers in the U.S. and Canada use Bridge Store. Between retailers and brands, there are 6,257 syncs. Therefore, on average each retailer is syncing with 6.2 brands via Bridge. When we get stores to sync with more brands, we increase their usage, strengthen the community, and widen the moat. The same applies to brands that sync via Bridge. Juliska, which uses Bridge to sync products with stores, isn’t likely to join two networks that sync products with stores. Even if it did, it may take weeks to set up. Then, it would take stores months to join and sync with it on this new platform.
When talking about moats, I can't help but think of castles. I can see why the kingdom of Camelot is so enduring: it possessed some of the same traits that Mrs. Cool seeks today--but 800 years earlier. It had King Arthur coaching and the Knights of the Round Table on its bench, as well as ‘moats' (i.e. castles, catapults, and moats) that were hard to replicate and stopped competing armies. I wonder what type of CEO King Arthur would’ve been? Was he more Adam Neumann or Tim Cook? I’m betting the latter.
In a kingdom, the ‘moat’ was not only the literal moat but also its subjects. They provided grain to the king (or church) and could be conscripted to war. For the kingdom, its 'user base' was the peasants. In today’s world, we’re Zuckerberg's peasants. (Gosh, that last sentence was depressing. Sorry.)
Where Bridge diverges from these smarmy companies is that we’re in charge of what we build and how we run it. We don’t have investors asking us to make compromises and sacrifice peasants. We’re in charge of creating a great moat that protects us and its users. It’s a noble fight to build a moat that protects indie businesses from Amazon and other big-box players. Amazon is currently developing software to take on Shopify via a project code-named Project Santos. Is Shopify’s moat big enough to thwart Amazon? If Shopify had our social network, would it be able to better fend off the attack? According to Facebook’s strength and all its victories, the answer appears to be yes. Networks are very strong and hard to break, and Shopify could benefit from our business model.
We're going to keep building our community and increasing the protection we provide it.
PS ~ Just after I wrote the above, I received an email from Intuit Quickbooks announcing it's launching a business network. Networks are moats, and Quickbooks just widened its moat a bit.