The moat paradox
Updates on Lazyweb: Week 2 in SF, A16z Speedrun is awesome! I love it & I particularly love our partners Josh and H. Really focused on distribution and getting the word out, so I created this game (Grow or No Grow) and posted it on Product Hunt. Would appreciate it if you interact with the launch post, or even play it and post your results on X.
It goes a long way đ«Ą. & thank you..
Now onto the real issue.
As I continue embarking on this entrepreneurial journey, one question keeps creeping in the back of my mind: how do you build a moat?
When Anthropic and OAI are killing industries one at a time, how do you build a sustainable business in the face of uncertainty?
The canonical writing on moats is Hamilton Helmerâs 7 Powers.
Helmer defines Power as the set of conditions that create the potential for persistent differential returns, and a real Power needs two things at once:
Benefit: something that materially improves your cash flow
Barrier: something that makes competitors unable or unwilling to arbitrage that benefit away. A benefit is common. A barrier is rare.
Then he gives you the seven:
Scale Economies
Network Economies
Counter-Positioning
Switching Costs
Branding
Cornered Resource
Process Power
The problem, though, is that every one of those seven is a lagging indicator. Nobody has scale economies or switching costs on Day 0. I am just getting started with Lazyweb, and sure, it is nice to have a destination, a story of what it looks like if seven things go right. But it tells me nothing about whether I am moving in the right direction today.
The best answer I came up with: the leading indicator is your ability to solve the hardest core problems in your domain.
That is it.
The more hard problems you are able to solve, the bigger the chance you build a defensible business. And I mean the ones that are directly correlated to core user value, not secondary ones or, even worse, problems that donât exist.
Here is how I backed into it. Take the moats you can name off the top of your head, and ask what they looked like on Day 0, back when nobody called them moats.
- Taking on the yellow cab industry => Hard, Risky, Takes a long time => Moat
- Building trust for people to sleep in strangers beds => Hard, Risky, Takes a long time => Moat
- Making design software run in the browser => Hard, Risky, Takes a long time => Moat
- Getting code to run on a graphics card => Hard, Risky, Takes a long time => Moat
- Scaling transformers â Hard, Risky, Takes a long time => Moat
That is the shape. High effort, high variability of outcome, high ceiling. Nobody could shortcut it, which is exactly why it compounded into a barrier.
Ask yourself how many times have you seen something out there mega successful and been like âI thought of that first, many many years agoâ
So the more interesting question is not what the moat is. It is why the hard problem was still sitting there, unsolved, in plain sight. And I think that part is biology.
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We shy away from hard problems because uncertainty triggers a primal âfight or flightâ mode.
There is a study I keep coming back to. Researchers at UCL had people learn which rocks had snakes hiding under them, with an electric shock when they guessed wrong. The people who knew for certain they were about to be shocked were calmer than the people facing a coin flip. A 50% chance of pain was more stressful than a 100% chance of it.
We are not avoiding difficulty. We are avoiding not knowing.
And that effect compounds for long-horizon, high-effort, uncertain tasks. A hard problem is a coin flip you have to hold for two years. Every instinct you have wants to resolve it, and the fastest way to resolve it is to go do something smaller that answers back today. Ship the integration. Redo the landing page. It all feels like work. None of it builds a barrier.
Which is the good news, if you can stomach it. Everyone flinches at the same moment, for the same reason.
Dear future Ali:
When you are scared because smth is hard, and you donât know if u have it in you, but u have enough conviction that if you make it work it will be highly valuable for ur users: that is the signal, not the warning.
Embrace the uncomfortable feeling in your stomachâŠand dive right in, you may be onto something here.
Fear is good, especially if its driven by uncertainty.
This is it for today, until we meet next time (:
Ali Abouelatta