Value and Moats
Strategy reduces to two questions: how do you create value, and how do you keep it?
The simplification
Most strategy frameworks multiply complexity. Competitive forces, value chains, resource-based views, core competencies — the vocabulary grows whilst clarity recedes.
Strip it back. Strategy is about creating value and capturing some of it. Everything else is elaboration.
Creating value means making customers willing to pay more, or making suppliers and employees willing to accept less. That’s it. The Value Stick visualises this: willingness-to-pay at the top, willingness-to-sell at the bottom, and your job is to lengthen the stick.
Capturing value means building barriers that let you keep some of what you create. Without barriers, competition erodes margins to zero. You create value; rivals copy it; customers get the benefit; you get nothing.
The two questions are distinct. You can create enormous value and capture none of it — compete it all away through pricing pressure. You can capture value without creating it — monopoly rents from a position you inherited. Sustainable strategy requires both: create value and build barriers that let you keep some.
Creating value
There are only two levers for creating value.
Raise willingness-to-pay. Make your product more desirable. Better features, better experience, better brand. Customers will pay more because they want it more.
Lower willingness-to-sell. Make your company a better place to work or a better partner to supply. Employees accept lower wages because they value the mission or the culture. Suppliers accept lower prices because you’re reliable and easy to work with.
Every strategic initiative should map to one of these. If it doesn’t raise WTP or lower WTS, why are you doing it?
Complements offer a less obvious mechanism for raising WTP. When the price of a complement falls — or its quality rises — willingness-to-pay for your product increases. Cheap broadband makes streaming services more valuable. Great apps make phones more valuable. The strategic insight: invest in making complements cheaper or better, even if you don’t capture that market directly.
Time creates value in a less obvious way. Products add value only 0.05–5% of the time they spend in your system. The rest is waiting. Compress cycle times and you raise WTP through responsiveness — the most attractive customers are those who cannot wait, and they’ll pay premiums for speed.
Price-sensitive customers signal weak differentiation. If they haggle relentlessly, you haven’t raised their WTP enough. Tough customers are feedback.
Capturing value
Value creation without capture is charity. You need barriers.
Network effects are among the strongest. A product with network effects becomes more valuable as more people use it. Once a network reaches critical mass, it becomes nearly impossible to displace. Why use the second-biggest marketplace when buyers and sellers are already on the first?
Network effects create winner-take-most dynamics — one dominant player, a distant second, then everyone else fighting for scraps. If your business can create network effects, prioritise growth over monetisation early. Reach critical mass first; capture value later.
But network effects aren’t the only barrier. Real choices about scope and positioning create fit that’s hard to copy. Two logics work: lowest cost or distinctive value. What fails is straddling the middle — selling on features whilst competing on price. The firms with the strongest economics aren’t the widest in scope. They’re the ones whose activity systems align.
Fit compounds. Every decision that reinforces your strategic logic deepens the moat. Every decision that blurs it leaks value to competitors. Kill anything that blurs.
The timing question
Creating value and building moats unfold over time. When you act matters as much as what you do.
Explore versus exploit captures the essential tradeoff. Early in a market, a product, or a career: explore heavily — test hypotheses, gather information, let the learning compound. Late in the game: exploit what you’ve learned, optimise what works, because there’s no time to benefit from new discoveries.
The two mistakes are symmetric. Exploring when you should exploit — the company that keeps pivoting after finding product-market fit, never benefiting from what it learned. Exploiting when you should explore — the company that milks a dying product, missing better options whilst they’re still available.
Both mistakes feel rational in the moment — endless exploration feels like prudent de-risking, endless exploitation feels like disciplined focus. The error only becomes clear with time.
Moats themselves have timing. Some barriers must be built early, when they’re cheap and available. Network effects compound from early users — later entrants face an established incumbent. Switching costs accumulate through integrations, workflows, and learned behaviours that take time to develop.
Other barriers can be built later. Process excellence takes years to develop but doesn’t require first-mover status. Brand can be built at any stage if you’re willing to invest.
Match your barrier-building to your time horizon. If you have long runway, invest in barriers that compound. If runway is short, exploit the barriers you have.
The practice
Strategy becomes practice through discipline.
Map to the Value Stick. For every initiative on the table, ask which lever it pulls. Raises WTP? Lowers WTS? If the answer is neither, cut it. That filter alone will halve most agendas and double their strategic coherence.
Test your choices. Write down where you play in one line. Write how you win in one line. For each, flip it. Does the opposite sound rational? If not, you haven’t chosen — you’re describing what you do. Real strategy requires decisions that exclude alternatives.
Audit your moats. What barriers prevent competitors from copying your value creation? Network effects, switching costs, process excellence, brand? If the answer is “nothing specific,” you’re competing on execution alone. That works until someone executes better.
Match timing to horizon. How much runway do you have? Long runway means explore, invest in compounding barriers, build for the future. Short runway means exploit, extract value from existing positions, optimise what works.
The organisations that win aren’t the ones with the cleverest frameworks. They’re the ones that create real value, build real barriers, and match their timing to reality. Strategy is simple. Execution is hard. But the simplicity matters — it’s what keeps you focused when complexity tempts you to drift.
This essay synthesises ideas from:
Connects to Library: The Value Stick · Network Effects · Explore vs Exploit
See also: Reading Guide for the complete collection of Field Notes.