Ben Thompson's “laddering up” and building bigger moats

2016-04-03 3 min read

    Last weekend I finished the The Everything Store, which details the rise of Amazon from a fledgling online book retailer to its current form. One pattern that stood out for me was how Amazon was able to continuously push into new business areas due to the infrastructure that they had in place based on previous decisions and commitments.

    They started with books but were able to grow into other smaller products once they figured out the logistics behind shipping smaller items. Once Amazon had that in place they kept tweaking their distribution system to expand the variety of products offered while improving the speed of delivery. This allowed them to keep amassing a list of products which they used to open up their platform to third party sellers. And as Amazon improved their infrastructure they were able to open that up to these third party sellers as well. In parallel, they built AWS to provide computer services to internal Amazon teams but were able to turn it into a brand new line of business that powers the majority of new startups. And now their are rumors of Amazon building out a shipping service to bypass FedEx and UPS.

    Ben Thompson coined this the “ladder-up strategy” and I’d argue it’s the only way companies can keep consistently growing. Relentlessly focusing on a few things and then using them to attack adjacent markets is how you grow from a struggling startup to a powerhouse. The challenge is making the short term decisions that set you up for success in the future as well as knowing when to leverage that infrastructure to move into the next thing. The former is incredibly difficult - it requires thinking beyond the immediate step and understanding the opportunities that become available after a successful execution of the initial step. Then follow up by thinking of what the next strategic step will be and what doors that will open up. After a few iterations of this exercise you may get a glimpse of your company’s future. But the ideas are the easy part - the execution is an order of magnitude more difficult. Scenarios will consistently come up that necessitate changing your approach but each change will pull you further and further away from your initial vision. You then need to either steer the company back towards the original direction or adapt your plan based on these new directions.

    It’s incredible seeing this successfully execute though. Companies that are able to do this consistently increase the size of their moat and become nearly impossible to dislodge. Each of their activities complements and reinforces the others which when coupled with their benefits of scale grant them monopoly-like powers.