🔒 THE BUSINESS ADVANTAGE NOBODY TALKS ABOUT ENOUGH

When I look at a company, one thing I find interesting is not just how much it sells.

It’s how difficult it would be for customers to leave.

Some businesses have products people can replace in five minutes.

Others become part of a customer’s daily routine, business operations or entire ecosystem.

That difference can be enormous.

Think about the software a company uses to run payroll, manage accounting, store data or communicate with customers.

Once thousands of employees are trained on a system, years of information are stored there and other systems are connected to it, switching isn’t as simple as cancelling a subscription.

There is a cost to leaving.

There is a learning curve.

There is disruption.

And sometimes there is simply no good reason for a customer to take the risk.

$Microsoft(MSFT)$ is a good example.

A business using Microsoft 365 might rely on Outlook for email, Teams for communication, Excel for financial models, SharePoint or OneDrive for files, and potentially Azure, Power BI, Dynamics and Microsoft’s security products as well.

Individually, each product has competitors.

But once several of them are connected across an organisation, replacing the entire setup becomes a much bigger decision.

Employees already know the software.

Business processes have been built around it.

Data and files are stored within the ecosystem.

Other applications may be integrated with it.

Moving away can mean time, training, migration costs and disruption.

That’s what makes switching costs so interesting.

A company doesn’t necessarily need the cheapest product if customers believe changing providers would create more problems than it solves.

The same idea appears in consumer businesses too.

People don’t always choose a product because it’s objectively the best.

Sometimes it’s because they’re already familiar with it.

Their friends use it.

Their data is stored there.

Their purchases are connected to it.

Their devices work together.

Their habits have formed around it.

Over time, convenience can become a competitive advantage.

I think this is one of those things that can be easy to overlook when looking at a stock.

Revenue growth gets plenty of attention.

Profit margins get attention.

New products get attention.

But customer stickiness can tell you something about how durable those numbers might be.

Of course, switching costs aren’t permanent.

A cheaper competitor can appear.

Technology can change.

Customers can become unhappy.

Regulation can alter an industry.

And sometimes a company becomes so comfortable that it stops improving.

So I wouldn’t assume that high switching costs automatically mean a company has an unbeatable moat.

But I do think it’s worth asking:

If customers wanted to leave tomorrow, how difficult would it actually be?

That question can reveal a lot about a business.

Because there is a big difference between having customers who buy from you…

and having customers who have built part of their lives or businesses around you.

The second one can be much harder to disrupt.

🔍 What business do you think has the strongest customer lock-in — and why?