The world’s number one investor Warren Buffet and his partner Charlie Munger analyse the businesses they choose to invest in by thinking about moats. You know, the deep, wide ditch, filled with water, surrounding a castle as its first line of defence against attack. They only want to invest in businesses that have moats. Here’s a snippet from Buffet on the topic at the 2000 Berkshire Hathaway annual investor meeting:
“So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way – it’s just too risky. We don’t know how to evaluate that. And therefore, we leave it alone. We think that all of our businesses – or virtually all of our businesses – have pretty darned good moats. And we think the managers are widening them.”
Do you have a moat around your practice and are you widening it every year? This gets to the heart of your competitive advantage – the things that your business has that makes it harder for your competition to beat you. Like Buffet says, your moat can’t be tenuous. You must work hard to widen the moat every single year. Increase your advantage each year. If you’re wondering what the hell I’m talking about, let me use Jones And Co. as an example.
Our moat is our team. We have a better team than anyone in our area, if not the country. We have the most ‘talent’, the best training, the highest level of skill, the highest levels of passion and enthusiasm, the most know-how and consistency. If a new practice comes along as a competitor, it’s extremely hard for them to match us in terms of having a high-performing team because we’ve been widening that moat for many years.
Our moat is the unique client experience and choreography and optimised processes and eyewear styling expertise and selling and serving skills. We’ve been widening that moat every year and we work on widening it constantly.
Our moat is the relationships we have created with our clients through the quality of the experience they have with us in person, the rapport and individuality and personal relationship we create with every client, as well as the ongoing communication we have with them through our monthly newsletter, customer appreciation events, client photos, referral contests and unexpected surprises we give them. Widening the moat.
To a lesser extent, but still important, is the products we work with, the niche frame companies we work with to create our product offering. The quality of the relationship we have with these companies based on who we are, our ability to be very successful with these brands and earn the respect and admiration of these companies who will go out of their way to help us. That’s part of the moat too.
So what is Buffet’s advice to you when you’re facing tough economic conditions? Widen the moat! Make your business stronger. When everyone is facing a more difficult economy, it is the businesses that widen their moat every year that will do extremely well in the long run.