What is a Competitive Moat?
A moat is a durable competitive advantage that protects your business from competitors, like a medieval castle’s moat protected against invaders.
Types of Moats
Network Effects
Product becomes more valuable as more people use it.
- Examples: Facebook, Airbnb, marketplaces
Switching Costs
Expensive or difficult for customers to switch.
- Examples: Enterprise software, data platforms
Economies of Scale
Cost advantages from size.
- Examples: Amazon, Walmart
Brand
Customer trust and recognition.
- Examples: Apple, Nike
Regulatory/Legal
Patents, licenses, regulatory barriers.
- Examples: Pharma, utilities
Data Advantage
Proprietary data that improves the product.
- Examples: Google, Netflix
Building Moats
- Start with unfair advantages
- Compound advantages over time
- Focus on defensibility early