To succeed big in business, one way is by constructing a moat. This concept was popularised by Warren Buffett:
What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it, surround — protecting a terrific economic castle with an honest lord in charge of the castle.
What we’re trying to find is a business that, for one reason or another — it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it.
But we are trying to figure out what is keeping — why is that castle still standing? And what’s going to keep it standing or cause it not to be standing five, 10, 20 years from now. What are the key factors? And how permanent are they? How much do they depend on the genius of the lord in the castle?
Another way to think about the moat is to ask the question: “What is your 10X advantage?” What makes you so much better that a challenger will find it very hard to switch your customers. For many tech businesses today, network effects become the moat that helps them create a dominant position that becomes hard for a competitor to penetrate.
During my IndiaWorld days of 1997-99, the popularity of the portals became a moat that helped us grow. People came in for one of their interests and stayed on to find others. Samachar with its single page news aggregation became the magnet. Interestingly, everyone else tried to build their own editorial teams. The aggregation of the most important news on a single page became Samachar’s differentiator and the word spread virally for it to become the default ‘home page’ for many Indians globally. Habits once formed become hard to break – which turned out to be good for us.
Today, in Netcore, one of the moats we have created with our email business is ensuring better deliverability of emails. This leads to more opens, clicks and transactions. Email deliverability becomes a moat that is hard for challengers to cross.
So, one of the first questions for entrepreneurs to think about is about how to construct the moat. That is the foundation for future success.
Tomorrow: Part 39