Sweaty Businesses Are Still a Moat
Everyone building SaaS companies right now has heard the same story.
Building software used to be the moat. If you wanted to launch a product, you raised money, hired a dev team, and spent a year shipping a v1. Most people couldn't get past the first step.
Then Claude Code built a bridge. Now anyone can build software, and product stopped being the limiting factor. The moat moved to distribution, and so you'd better start building a brand.
I agree with some of that story. I literally write a personally-branded newsletter.
But distribution has always been a limiting factor, and building a business is still hard. And it's the hard parts of building that form the moat, not distribution.
Because last I checked, nobody is Claude Coding a construction company.
So I'm going to walk you through why the real moat is sweaty service businesses, how those businesses win with AI, and why even product businesses should be offering a service layer if they want to survive.
Where the Moat Actually Moved
The consensus logic of today goes something like this: It's cheaper to build software, so more SaaS products get built, and so the product itself isn't what sets you apart. It's a brand with distribution, so go build an audience.
It's a fair argument. When products are everywhere, attention is what's scarce, and scarcity is a moat.
But the same tools flooding the market with products make it easier to market. And since building costs less, you need comparatively less distribution to make the numbers work anyway. Distribution matters, but it's the same limiting factor it's always been. It didn't become the moat.
So where did the moat go? Look at what AI actually made easier.
What got easier was starting. There's no raise, no dev team, and you can have a working prototype by Friday. What's still hard is actually building the business.
It still takes countless hours, rounds of user feedback, and iteration on top of painful iteration. And that's just launching a web app.
I know because I built Flyletter as a non-technical founder. When I wrote about building its Claude MCP connector, the scaffold took an afternoon. The decisions that made it actually good took months longer, and I found each one by breaking something else (and hearing a lot of customer complaints).
The consensus view mistakes cheaper-to-start for easier-to-finish, and then warns us about the SaaS-pocalypse as if anyone can build a successful business. They can't.
Which means all the hard, sweaty parts of your business are your actual moat.
Service Businesses Are the Most Defensible
If sweat is the moat, service businesses are the most defensible.
Take the extreme end of the spectrum, like construction or manual labor. Until robotics catches up, Claude can't pour concrete. It can't clean your pool, and it won't cook you dinner.
The physical logistics are the barrier to entry, and nothing you can build in a weekend changes that.
I recently had a devastating bathroom flood that ruined my kitchen. My insurance covered it, but it was a nightmare dealing with the adjusters. Each time I would speak to them, I'd think in the back of my mind, AI is coming for you. All they do is risk assessment and paperwork filing.
Then the construction crew showed up, and I watched them hang drywall and rewire electrical, and I saw in real time how blue-collar jobs would survive long after many white-collar jobs. Software could do the job of an adjuster or agent, but it couldn't hang drywall in my upstairs bathroom.
Sweat isn't only physical, though. It's the ghostwriter sitting with a founder for an hour to get the good stuff out of their head. It's the recruiter making 40 calls across their network to fill one role.
The principle is simple. The sweatier the business, the more defensible it is, because sweat is the share of work AI can't do cheaply and most people don't want to do at all. It's the part of your business no competitor is going to code in a weekend.
Every business has a sweaty component. Yours does too, even if you build software. The key is identifying it and investing in it as your competitive advantage.
How Service Businesses Win
Service businesses can be a low-margin grind, which is why most people avoid starting them in the first place. But the service businesses that succeed embrace AI to improve efficiencies and margins while keeping true to their sweaty core.
There are four ways to become an AI-enabled services company:
- Top of funnel. Outreach and content for lead generation. It's the same playbook I wrote about in this article on the three pillars of growth.
- Sales. Intake, quoting, scheduling, and follow-up using something like an AI CRM.
- Fulfillment. Delivering the work itself. AI handles the volume and a human owns the judgment.
- Back office. Internal tools that run things like operations and reporting.
One of my friends runs an outsourced CFO and accounting firm. His margins ran about 30% until he automated delivery with AI plus a team of CPAs in the Philippines. He saw nearly a 10x reduction in human time and cost while delivering a higher-quality service.
Compared to his competitors, he benefits from higher margins and a less labor-intensive business (with much less of a headache). He can take more money off the table, offer lower prices to onboard more clients, or reinvest in other areas of the business.
Even Product Companies Need a Service Layer
I run two businesses. The first is Flyletter, the AI newsletter platform, and the second is a done-for-you agency where I manage newsletters for other founders.
I started the agency because the product wasn't making any money. Then I realized the agency was making the product better, so I started thinking of them as one company with three benefits:
Price. Software gets priced against other software, and there's more of it every day. A service gets priced against hiring someone or doing it yourself, and nobody has time for either. Flyletter sells a tool. The service sells clients a finished newsletter, in their voice, in their audience's inbox, every week. Customers pay roughly 100x more for that than for the software.
Moat. The product is already hard to build, but the service stacks a second moat on top of it. A competitor has to out-build my product, and then they have to out-build the part where I sit with a founder, tease out the expertise they never wrote down, turn it into something their audience actually wants to read, and hit a quality bar that founder expects, every single week.
Learning. The hardest part of building a product is iterating on real user feedback. The service business lets me sit with customers and learn about their pain points and hear their feedback, and I get paid for every minute of it. Every edge case, quality bar, or workflow I've built for a client has gone back into Flyletter. The product is good because the service exists.
So if you have a product, the future is a service layer on top of it. The service is the moat you were missing, and it pays for the hard part of building the product while the product catches up.
Bottom Line
Building software got easier to start, but it's still hard to actually build a business. That's the moat.
The sweatier the business, the more defensible it is. An AI-enabled sweaty business beats a non-AI-enabled one. And if you have a product, add a service.
So, what's the sweatiest part of your business? And are you treating it as the moat, or trying to automate it away?
Writer, founder, and AI builder. Currently building Flyletter, previously sold Selling Signals (100k+ subscribers). 1 sold, 2 failed, 1 active. This post started as an issue of my weekly newsletter.