I wrote a thread recently on why capital as a moat strategy does not work. Turning it into a blogpost (with some minor edits).
The reason capital as a moat strategy does not work in the long run is because it lets you blitzscale without asking hard fundamental questions about your business. A few examples shared below.
Uber: Driver incentives lets you growth hack supply when you enter an underdeveloped market. As the market matures, more on demand companies enter.
You are not competing for the same demand (Ride on Uber vs Food for Swiggy).
but supply suddenly has optionality. They start asking “Oh I could make X Rs. driving for Uber for an hour vs. Y Rs delivering meals for Swiggy”.
And they optimise for take home money/ hour.
Suddenly you realise that there was never any network effect.
Holachef (India’s Munchery): I remember when Holachef was the rage in Mumbai when I used to work there.
Delicious home cooked meals delivered to your doorsteps.
P/M fit? Yes. Who would not want delicious chole bhature for 70 bucks?
Sustainable business? No.
Wework: The first time I entered a Wework for some talk hosted there, I was mind blown.
Fucking elevator music playing in bathrooms. Beer. Fruit Infused Water.
I was like wow this place bleeds money.
Did they really need to give out all these stuff for free?
Could people have managed without the unlimited beer?
They could have asked this much before their botched IPO.
Maybe they could have asked if this was the only way to grow.
Maybe Softbank instead of pursuing growth at all costs could have taught their portfolio companies controlled sustainable growth.
I don’t have the answers. But once the good times end, we will all start asking the same question: if Blitzscaling was the only way.
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