founders paras chopra, chapter by chapter
19. Switching Costs Determine Business Value
Future profits are safer when customers have meaningful reasons not to leave.
Investors value expected future profits, and easy customer switching makes those profits fragile. A moat is any durable obstacle to a competitor taking the customer; among the strongest are investments customers accumulate in data, workflows, integrations, learning, relationships, and complementary products.
Design defensibility from the beginning without holding customers hostage. Ask what useful investment grows as a customer succeeds with you and would be costly to rebuild elsewhere. Combine several legitimate switching costs, since profitable markets inevitably attract capable competitors.
Original sketch and model by Paras Chopra. Read the source chapter.