Is process a moat in SaaS?

In What's Your Moat, Jason Lemkin lists several moats (sources of defensibility) that apply to SaaS businesses. I categorised them based on the 7 Powers framework by Hamilton Helmer and found two powers missing (Cornered Resource and Process Power).

While Cornered Resources (such as a strong early team) are commonly considered doctrine rather than a moat, the omission of process power was more interesting.

What is Process Power?

Helmer describes companies with Process Power as follows:

Benefit. A company with Process Power is able to improve product attributes and/or lower costs as a result of process improvements embedded within the organization. For example, Toyota has maintained the quality increases and cost reductions of the TPS over a span of decades; these assets do not disappear as new workers are brought in and older workers retire.

Barrier. The Barrier in Process Power is hysteresis: these process advances are difficult to replicate, and can only be achieved over a long time period of sustained evolutionary advance.

He admits that process power is rare and difficult to achieve. But is it too rare to apply to SaaS companies?

On one hand, the path to growing a SaaS business is well benchmarked and there are processes describing anything from finding leads to deploying reliable infrastructure.

But there are companies that get very different results.

The process outliers

Ahrefs is a popular SEO tool with a fifth of the engineering resources of their biggest competitor Moz. They claim to achieve this by using an OCaml based stack also favoured by Wall Street traders Jane Street.

Tiny is a start-up conglomerate that uses several ideas like simple positioning and No Code to quickly spin up new businesses in record speed. They also run one of the leading design and development studios Metalab, and one of the earliest No Code agencies 8020, ensuring excellence in both areas.

Does this mean that every SaaS company should use OCaml and Webflow or is there a way to create process advantages organically?

In an industry that speeds things up traditionally with investment, we have ignored frameworks that build process advantages in a capital-agnostic way.

Improving process

I'll offer three examples.

The first is the Theory of Constraints, a framework introduced in The Goal. The Theory of Constraints predicts that every company is usually constrained by one bottleneck at a time, called a “constraint” and releasing that constraint is the key for increasing output.

Another theory, promoted by Douglas Engelbart is the ABCs of Organizational Improvement. Engelbart argues that we should manage not only core activities (also known as “A activities” or “Business as usual”) but have explicit roadmaps for both B activities (“improving how we do A”) and C activities (“improving how we improve”). By focusing on process improvement explicitly, we can create compounding leverage for core activities.

A more modern example of continuous process improvement is described in the Protocol Series by QuantumBlack.

To summarise, having a great process is not the same as having great execution and we should not neglect that, even in SaaS.

P.S. Here is the categorization of the SaaS moats I went with. The high-level categories are from 7 Powers, the bullets are from Lemkin.

Counter-positioning

• “No Contract at all” easy on-boarding

Network effects

• Data
• Structured Data
• Partners + Ecosystem
• Agencies and Implementation Partners

Switching costs

• Integrations
• “Most Enterprise” Vendor
• Long Term Contracts

Economies of scale

• Using massive amounts of capital to play in every segment

Brand

• Brand

Cornered resource

• ???

Process power

• ???