Entry Barriers, moats for a Saas Platform

There are walls built around ancient forts, some of the forts are built on mountains, there are walls plus water bodies built around the forts for protection from the enemy. These are historical examples. They are moats. Their objective is to create a strong entry barrier so the enemy can not come in easily. Moats protect and allow to buy more time to counter-attack/ escape and appropriate steps can be taken in an event of war or attacks.  

Building and protecting Saas business is similar. And attacks from all sides are common in business. I assume you know what Saas is, what a multi-sided platform is, network effects, business model and so on. Saas is prevalent in b2b space because the Organisations (small to mid-size as well as enterprises) use softwares and pay appropriate rent for using. 

So what are the entry barriers or moats for Saas platforms? Here are my thoughts. My point of view is centered around b2b software platforms. However, I believe most of these also apply to b2c and non-software platforms. Here are the top entry barriers, moats for a Saas platform. 

1 - Don't think that if you start building a Saas platform now, you will have moats or entry barriers. See, these concepts are mostly applicable to businesses which are mature. When I say mature I mean with millions of Users, thousands/ hundreds of customers revenue and close to a decade of being in the Global market. If you build multiple products and then a platform you have hooked the customer and then the switching cost for a customer comes into picture if the customer wishes to move away from your platform … 👍  

Switching costs for a customer include time to look for a solution to switch to, cost to switch, people/ teams to collaborate, operational effort to switch from one platform to another platform and so on. One of the most important switching costs which gets missed is the opportunity cost. Think about it, you/ teams/ the money to be spent could be doing something better. I hope this point is noted. 

One relevant learning from me - golden handcuffs work well when value delivered over time is  exponentially higher than the pain (if any). 

Higher the switching cost better the stickiness and entry barrier for the Saas platform. 

2 - One more entry barrier for platforms is the regulatory requirements, barriers, and/ or compliance. This is very important in sectors such as Healthcare where the regulatory requirements are stringent and their compliance is strictly needed. This applies IT security, privacy, data and similar compliances which keeps evolving every alternate year … 🫠 

Similar can happen in case of intellectual property. An example of this is a unique set of knowledge needed to build specific hardware. The more stringent the regulatory requirements, the stronger the entry barrier, moat.  

Here is a refresher quote for you - -

"Those who do not learn from history are doomed to repeat it." 

by George Santayana

3 - Another entry barrier is capital, up front set up cost and similar. Do you know how much time it takes to set up a copper mine? I asked gpt-s and it takes close to 20 years to set up a copper mine and copper is one of the most critical metals. I understand I am digressing from Saas but I wanted to strongly convey the capital as an entry barrier. And obviously capital comes with expectations of positive ROI and risk on negative ones. 

Refer to a previous point, capital also has an opportunity cost.

Higher the capital requirement stronger the entry barrier or moat … 🏆  

4 - Let’s come to Software now. The next entry barrier is distribution. It is a bit harder to hack into distribution both in the terms of customers as well as users. When I say distribution I mean ability to acquire customers and users from multiple channels. This needs a well oiled system which keeps delivering outcomes as expected. Over time, the acquisition channels which used to work get mature and may not deliver as they used to. 

Higher the virality, better the distribution spread, stronger is the entry barrier/ moat. 

5 - In the last 10 years, Apple stock price has done really well. However, a lot of critics say that Apple products have only incrementally evolved over the decade and newer products have not lived to consumer expectations. Then as a platform what Apple has done right? War Eagle, Time Cook Sir … 💰 

In my opinion, Apple has nailed the economics of manufacturing and supply chain over the years. This has empowered Apple to show profits year over year in public markets and grow. Very cool, Apple. I like Mac very much. Similar for a Saas platform where multi-tenancy, multi-cloud, modularisation, integrations and other hacks are done.  

Higher the cost efficiency or economics of scale, stronger the entry barrier for a Saas platform. 

6 - Last and not the least are network effects. This essentially means every new user who is onboarded to the platform helps the other user get better, assist in use cases and/ or makes their life better. And that is why the referral loop explodes. In this user behavior journey the users create significant data which can not be replicated or synthesized. Network effects make the learning curve for users very easy. 

Some of the b2b platforms offer training, certifications, communities which become part of the user identity and help them in career progression. It is the eco-system which helps both the customers as well as the users of the b2b platform. They are truly habit forming products. Here are some of the examples … 🙋  

• Slack is fun with more users >> more projects >> more groups >> more emojis leading to better collaboration. And yes, the mobile app too. 

• Shopify is business friendly with many integrations which attract more users and businesses. 

• Gong uses data from users to give you intelligence. The more users, the better. 

Better the network effects, stronger the entry barrier for the Saas platform. 

In a previous post, I have also mentioned how to monetise a platform side and how much, how many incentives should be offered to a side, how to overcome chicken and egg problem, establishing and validating a business model, time of entry in the market and so on. If entry time is missed, it becomes harder to clear barriers and impossible to displace existing players. 

Finally, food for thought related to entry barriers, moats - 

• Uber as a platform became successful because it moved very fast. Time will tell if it goes into autonomous taxis and becomes successful. 

• In 2026, Open AI is trying to scale fast because if time is gone, adoption of other players will get better and they may take significant market share. Very hard moat to defend. 

See you soon. 

……. 

Swagat Irsale is Growth Advocate. He works with startups and scale ups to grow revenue and build products which enterprises love to use. 

Reach him for work and partnership opportunities.