Discussing moats at the strategic level is nothing new, but I’ve seen them being used far too little. Too often, we run the same race with competitors or chase after them. Too rarely do we think about our company’s strengths and how they protect us from competitors. Defense must be in place for offense to be useful.
When it comes to moats, NYU Stern’s Strategy Professor Sonia Marciano has the brightest vision and expertise. For this reason, her teachings color both this text and my own preference for utilizing moats.
What are strategic moats?
You have a castle, and to protect it, you have a moat or moats. The castle is the added value or strength your product or service offers in the market. The moat and moats are those barriers that prevent your competitors from exploiting or copying the added value or strength you offer in the market.
In your business, you can identify such existing moats that have been created intentionally or by accident. You can also aim to create entirely new ones or strengthen existing ones.
By reading this text, you’ll be better able to analyze the effectiveness of your business’s moats.
Different moats and their usefulness
As you can see from the image above, there can be one or several moats. They can be ranked according to how defensible they actually are. The more defensible moats there are and the more of them there are, the better the business can protect itself from competitors and work peacefully towards growth.
A truth familiar from martial arts applies here too: without effective defense, attacking is futile.
Features as a moat (weak)
Very often, product or service features are called moats, whether they are concrete features or production methods. Features are the weakest moat because they can usually be overcome by throwing enough money at crossing your moat. And that’s something the world has plenty of, if someone has the will to cross that moat.
If this is your only moat, a sword hangs over your business by a hair every day. You need more. Companies equipped with this moat are often seen in industries where many new companies copying each other suddenly appear.
Legal strategy as a moat (moderate)
A moat somewhat related to product features is legal strategy: the use of product protections, patents, copyrights, and similar legal instruments. Additionally, this moat also includes spending time in courtrooms, whether you’re suing others or being sued.
This moat is stronger than competing with completely unprotected features, and is indeed widely used.
Examples of companies using legal strategy can be found, for instance, among mobile phone manufacturers that have been involved in dozens of patent disputes simultaneously for years. However, this is an expensive and heavy strategy, as many SMEs engaged in patent disputes can testify that defending a patent can lead to bankruptcy even if you’re right.
Off-market strategies as a moat (moderate)
This moat is an ambiguous mixed bag, but it has proven surprisingly effective. It includes those means used outside traditional market activities. These could be, for example, built relationships with decision-makers or industry influencers – the real decision influencers.
Thanks to these, a company may have a get-out-of-jail-free card, succeed in building a new factory in a place where competitors have had difficulty expanding, or get financing on easier terms than competitors because the CEO has good relations with financiers.
Many companies may have such moats even by accident, and they should be strengthened.
Mindshare as a moat (strong)
Mindshare as a moat is usually enjoyed by big brands in their field: cola drinks bring to mind a couple, accounting firms four, and aircraft engine manufacturers one. However, mindshare is not just mass acquired with big money over decades. It means you’re the default in your segment. How small you slice the segment is up to you.
Mindshare is often strong, especially on the consumer side, and if you have it, your marketing can even be lukewarm. This kind of thing is sometimes seen in classic consumer brands, where products sell despite the marketing.
Infrastructure as a moat (very strong)
Infrastructure is a strong means of defense. It has always been and still is, whether it’s digital or real-world infrastructure. If you have working distributor relationships and intermediate warehouses or stores in optimal locations and competitors can’t get to them immediately, because building infrastructure takes a long time and costs money, you have a good moat.
There are several examples from both B2B and consumer sales. When a company can ensure it has what it needs when it needs it, and competitors can’t do this, the moat is in place.
However, I recommend remembering that this doesn’t only apply to traditional logistics chains and brick-and-mortar stores. Digital infrastructure can also form a moat.
Experiences using moats in strategy development
I use moat thinking as a tool a lot myself. When asked about moats, I’m often told that the main moat is the superiority of the product. After this, it’s important to dig deeper, as you can see from reading the text: features are not a good moat.
You might also be interested in these:
The Strategic Role of Websites in Marketing as a Service (MaaS)
Digital Strategy – Modern Tactics as Part of a Functioning Marketing Entity
Validate Go-To-Market Strategy with Behavioural Digital Market Study