in Behavorial Psychology, Business, Moats, Network Effects

Becoming the Standard

One of themes that has become an investing mental model of mine is how successful businesses (and/or products) become a standard in the customers’ minds. Becoming the standard often affords you this psychological and/or physical “moat”.

These “standards” come in many forms.

They can be from the “mind-share” of the consumer, in the case of Coca Cola or Zoom video conferencing.

They can be from a benchmark, score or graph, like in the case of a FICO (credit) score or your LinkedIn network.

They can be the most valuable thing to use because it’s the best use of your current knowledge, in the case of Adobe’s Photoshop or Unity’s software for game-making.

Similarly, they can be the most valuable thing to use because it’s the best use of your time, in the case of being on Facebook to see what your friends are up to, or Netflix as the entry point to discover new shows.

They can be the preferred method in the entire industry, in the case of a Word Document format or Excel Document format.

They can also be things like an engine or engine-like, especially where things are necessarily complex, like in the case of Google Search or literal engines like on Boeing or Airbus planes.

Said another way, “the standard” occupies a class of its own. Typically it’s something where people “feel” like they have no other choices than to go with what that product, service or business. At least no other preceived equivalent.

In the very least, using it gives you an edge over the next best alternative because it’s better, cheaper, faster or all the above.

It’s important to note, that the key is to understanding if the standard changes over time. This erosion can happen even with businesses or products that also have other moat-like qualities, like network effects or when products/businesses have “caught up” in terms of quality, cost and/or speed.