What if you could make your business untouchable? Protect yourself from copycats and competitors?
Understanding and reinforcing your moat, in my opinion, is even more important than having a huge total addressable market (TAM).
As Warren Buffet puts it:
"The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles."
Here’s a list of seven moats that could help you understand where to start.
𝟏. Brand Moat - Build a brand that sets you apart from others. Ferrari is a great example of a company with a very strong brand moat.
𝟐. Cost Moat - Leverage the economies of scale. Be ruthlessly efficient and make the prices of your goods cheaper for your customers. Costco is one of the best examples of a “scaled economies shared” cost moat.
𝟑. Switching Cost Moat - Make it hard to leave your product because of integrations, new training, etc. Salesforce is a good example of a company that has a strong switching cost moat.
𝟒. Network Moat - The more people that use your product, the better the product becomes for everyone. This is also called “the networking effect”. Social Media like LinkedIn and Instagram are good examples. But also think about a company like Indian Energy Exchange.
𝟓. Regulatory Moat - Complex compliance requirements can create huge barriers to entry for competitors. This is the case for pharmaceutical companies and Boeing, for example. Another company that makes great use of the regulatory moat is Copart, which is worth studying.
𝟔. Intellectual Property Moat - Legal protection using patents, trademarks, copyrights, etc. Not the strongest moat, in my opinion, but it helps to protect your company. IBM used this for decades.
𝟕. High-Switching Moat - Your customers have built such strong habits around your product that they don’t want to switch. Apple is a great example; its fully integrated ecosystem of products keeps you sticking to Apple.
𝟖. Tollway Moat - It’s all in the name, but people can’t easily get to the other end without paying a fee. Railroad companies, (air)ports, and the hotly debated Appstore by Apple.
The deeper your moat, the stronger your company.
Keep in mind that this doesn't happen overnight - but while designing your business, you can already put the first building blocks in place.
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Don't create unicorns,
Let's breed blue whales.
🐋
