Moat Building: 3 Ways to Build Your Moat Around Your Business

As you approach planning for another quarter, take a moment to check in on your 3-5 Year Strategy or what he calls Winning Moves. These Moat Building Winning Moves are specific strategies that have the potential to double your revenue over the next 3-5 years. Many companies lose focus and momentum on these by only discussing them once a year during Annual Planning. Don't be one of them.

And while you’re there, take a closer look to see if any of your Winning Moves have the potential to also be a “moat building” move. Patrick Thean, author of Rhythm, suggests that you think of your market as your castle. Most castles have a moat, and the deeper and wider the moat, the more you’re protected. Patrick then challenges you to sift through your winning moves to determine if you actually have a moat building move. Moats usually work in one of two ways: 1. Make it harder for competitors to get in, 2. Make it harder for customers to get out. And, sometimes they can help you significantly widen the gap in pricing.

Imagine, at BlueNile.com, you could buy a 1.09-carat, round, ideal-cut diamond with G color and VSI clarity mounted in a platinum band for about $6,978. Let’s call it $7,000. At Tiffany & Company, the same ring would cost you about $13,500. That's $6,522 more just for the privilege to purchase at Tiffany’s, get the ring in their signature blue box, and have it neatly tied with a white satin ribbon (adapted from The Little Book That Builds Wealth by Pat Dorsey).

That moat is called Brand and competitors can’t touch it. Their diamond could be slightly larger, have slightly better color, cut or clarity, but their diamond can’t be tied up with a white satin ribbon in the blue box with the name Tiffany on it.

Interestingly, Blue Nile's stock is down about 24% since it went public in 2004. That's over a decade of no return for investors. Would you tolerate that in your company? Would you survive? Tiffany's total return is up 45-fold since it began trading in the late eighties. Tiffany has a moat. Blue Nile does not. (Low price is never a moat.)

A moat allows you to do things that competitors cannot – like charge $6,522 more for the satin ribbon and logo on the blue box.

I’m a Jim Collins (and coffee) fan, and often read about Starbucks' early beginnings back in the 1970s. At the time, Starbucks dreamed of becoming a $1B company, at a time when coffee was not the mainstay of any menu and the average cup cost was half a buck. Their BHAG would require two billion transactions unless they could raise the average price. Enter the mini, vacation-like experience at your local Starbucks, raise the price to $4-5, and watch the $1B revenue goal become attainable.

In working with clients, I get asked the question, “how do you create a moat?” My simple answer is “with a lot of hard work.” It requires a big effort to maintain a regular think rhythm. Most everyone will try it once. But to come back to a think rhythm weekly, or monthly, quarterly, even annually, requires discipline. And that’s where many teams stop short of the goal.

To get you thinking, here are of the best types of business moats that I see:

Switching Costs. My local Time Warner Cable is a good example. Once you have your e-mail, phone package, and cable tied up, it costs money, time and effort to switch. My bank is another example. Even if I wanted to change, how much trouble would that be?

Brand. Tiffany has a brand moat. So does Starbucks. For that matter, so does the Grateful Dead.

Speed. Microsoft grew big over time while laggard competitors found it increasingly hard to enter the market or catch up. Google did it even faster. The longer either company is in the market while getting ever bigger, the harder to knock them off.

Size. Absolute bigness can be an advantage if it keeps competitors out, but don’t overlook size within a niche market.

So, how do you dig the moat? Start with a shovel of commitment, a discipline of consistently discussing winning moves, and then fill your moat with the water of ideas.

Build a moat with three simple brainstorming exercises

1. List trends: List the top 10 trends you see or read about. What about experts in your industry and what they believe will shape the future? Drones; driverless trucks, cars, trains, or planes; 3-D print technology; Internet purchase versus store purchase; technology and science advances are just a few trends.

2. List companies in your industry: Make two lists – one with the five best performing companies in your industry and one with the five worst performing. What concepts are being utilized by the winners but being overlooked by the losers? What can you learn?

3. List companies in related industries: Same as above (related industries could be electrical, plumbing, residential building, remodeling, HVAC manufacturers, water heater manufacturers, etc.). What successful new concepts are emerging in those industries?

Now, go be king of your business castle. Dig your moat deep and wide, fill it with water, and watch the competition drown as they attempt to enter. Once you get it in place, prepare the move to your next castle, break out your shovel, and start over again.