The moat. Like the trench of alligator-filled waters around a castle, businesses have different types of protective moats around their profits, brands, and even cultures. Whether we are studying the largest companies in the world or thinking about our own businesses, moat maintenance matters. In order to survive and thrive for the long term, we need to constantly be looking for ways to perpetually widen our moats.
The Godfather of moat investing himself – Warren Buffett – put it well in the 2005 Berkshire Hathaway Shareholder letter,
Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.
When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.” And doing that is essential if we are to have the kind of business we want a decade or two from now.
In true Buffett folk-wisdom fashion, he recognizes the tiny, intra-day scale in the context of his favorite time horizon – “forever.” The daily details matter because they are cumulative. In the same way, a moat can be dug, deepened and widened one scoop of earth at a time, the same moat can slowly erode and fill in without continuous effort.
We constantly have to think of our own competitive positions. Every day our efforts count because every day builds off of the prior day’s effort. Whether brand new to business or seasoned over multiple cycles, “delighting customers, eliminating unnecessary costs and improving our products and services” have to be happening.
We’re either widening our moats or they’re being eroded. Stay focused.