Many investors focus on the current size of a company's competitive advantage. A better indicator of future success is the direction of that moat—is it growing or shrinking? Focusing on the trajectory helps avoid value traps like Nokia in 2007, which had a wide but deteriorating moat.

Initial data suggested the market for design tools was too small to build a large business. Figma's founders bet on the trend that design was becoming a key business differentiator, which would force the market to expand. They focused on building for the trend, not the existing TAM.

The moat for a market leader isn't just the initial VC investment; it's the subsequent, rapid follow-on rounds that create a 'wall of money.' This forces competitors to prove they can win against not just a brand name, but also a massive and compounding capital advantage.

When Figma started, VCs deemed the designer market too small. While this made fundraising harder, it also meant fewer competitors rushed in. This perceived niche gave Figma the time and space to build a complex, defensible product before the market's true potential became obvious to everyone.

Runway's founder justified a multi-year, pre-launch build by studying companies like Figma, which took six years to reach $1M ARR. This reframes building deep, foundational products as a test of stamina and team perseverance, not just a sprint based on raw intelligence or speed.

Contrary to the belief that a moat always leads to large-cap status, small-cap moats often protect a profitable niche. The moat provides time and protection for management to operate, but the "castle" itself may have a limited growth runway, focusing on returns within a specific market.

While many investors look for a competitive "moat," investor Mala Gaonkar's primary differentiator is identifying businesses with very long-duration moats. The key to finding truly great companies is assessing how long their competitive advantage can be sustained, not just that it exists today.

In a world where AI implementation is becoming cheaper, the real competitive advantage isn't speed or features. It's the accumulated knowledge gained through the difficult, iterative process of building and learning. This "pain" of figuring out what truly works for a specific problem becomes a durable moat.

Figma's market initially seemed too small to attract major VC interest or intense competition, giving them space to build a defensible product. Founders can gain a significant advantage by working in overlooked spaces, provided they have genuine passion to sustain them for a decade or more.