Finding Gold in the Margins

Building a Moat

Startup literature often talks about building a “moat” around your business to give you a competitive edge. This could be a strong brand, a product patent, or an advantaged supply chain.

The idea is to create a position of strength that makes it harder for the competition to attack your market essentially reducing your competition. There is another way to reduce your competition.

Go where they won’t.

What does that mean?

There is a lot of good reasons businesses decide not the pursue many great opportunities.

All businesses have to make choices of what they do and don’t work on. Maybe the profit margins aren’t as good as their core business so the product is margin dilutive to their portfolio, they have other ‘strategic priorities’, or there could be another reason altogether.

Real-World Example: Indulgent Snacks

I’ll put this into context with a real-world example with the indulgent snack.

Obesity is a real-world problem that nearly everyone has been aware of decades now. It’s regularly in the news and there is a large proportion of the population who are very concious of eating healthily.

Snack food businesses and fast food restaurants took most of the flak for obesity early on, and most if not all of them now have a corporate commitment to “improve the nutritional value of their products” or something similar.

Its also well documented that consumers want to eat healthier.

This has all fed through to the development teams in big corporates. Their business wants them to work on healthier options and the feedback they get from consumer surveys reinforces this , so they prioritise and work on healthier options over pretty much anything else.

Trouble is people still want a treat regardless of how bad for their health it is. But the data was telling the development teams that the opportunity was somewhere else. Which opened up space for smaller founders to exploit.

My favorite example of this is Snaffling Pig the UK based Gourmet Pork rind company. Pork rinds are pretty awful for you nutritionally – they are just short of 50% fat – but they taste delicious.

I love this quote from Nick Coleman the co-founder of Snaffling Pig, who said “When There’s a Trend For Health, There’s Also One For Indulgence ”

Watch him pitch his business idea on the UK’s Dragons Den here https://www.youtube.com/watch?v=zgAUDM9SwGc

So how do we identify these opportunites?

Honestly its not easy. But there are a couple of techniques that I use to assess if there is space around an existing business.

  1. Look at their portfolio and mission statement and see if there is a gap they are not serving.
  2. Find categories where there are lots of small players & few to no large companies. A great example of this is CBD in the UK. None of the bigger companies will touch this space until the regulatory classification is clear.
  3. Find emerging trends using tools like https://explodingtopics.com/ or https://www.trendhunter.com/ and see they apply to other categories.

Drop me an email if you want to get in touch about this or any other content on this website.

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