What is a Moat?
You are probably wondering what does building a moat have to do with business. A moat is often defined as a “deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack.” Moats are essentially a body of water that surrounded the castle, that ward off unwelcome guests and protects the castle’s inhabitants.
That idea also works for businesses.
In business, we can use this physical defense concept in a firm’s strategy against competitors. CEO’s and leadership teams may not typically consider how they can develop a moat around their core business to protect it for the long term, but it is an important consideration, especially in the uncertain dynamic environment we find ourselves in.
Building your Moat
Building a moat can appear to be a daunting task, but if effectively crafted, it can create unique competitive advantages for creating a barrier against your competition. The question to start with is “Can any business savvy individual figure out how to replicate the company’s core competencies?” Asking this question should lead you to also ask “what are the firm’s core competencies?” Moats that are made of durable competitive advantage hinges on a number of factors, however, consider narrowing to focus on a few initiatives that can give you the biggest effect in building your moat.
How do you build your moat? Focus on the following:
- Network effects:
Customer acquisition: acquire new repeat customers
Switching costs: reduce the need for customers to switch to another company who offer the same product or service
Engagement: build internal employee engagement
Knowledge: develop valuable expertise within your organization
Sustaining your competitive advantage via your Moat
Creating a competitive advantage that is sustainable requires linking your moat building activities to your strategy. We discuss how to develop your firm’s strategy in another blog post, see it here. By aligning your execution to your strategy ensures that you build and sustain your core competencies that leads to enduring competitive advantage.
If this idea resonates with you, setup a quick virtual call with us to discuss how best we can help you.