Are You Protected by a Moat?

What Does Defensible Mean? It means the business has a sustainable competitive advantage. Some people describe it as a “moat.” How protected is the business from competition?

What Are Some Solid Defenses? Defenses come in many forms and merit deep investigation and consideration. Good defenses might be:

·      Intellectual property - Do you have a patent, or even some proprietary process or material that is not protected by a patent, that can give you an advantage over competitors? 

·      Expertise - Is your sheer expertise such that it can’t be found elsewhere?

·      High switching costs - Do you have or can you create a “stickiness” in your customer base, such that customers are or will be unwilling and unlikely to switch to another supplier?

·      Network value - Has a “network effect” developed, or can one be developed, among users such that it would be a barrier to new entrants given their lack of a user base?

·      Economies of scale - As a result of your large size, are your costs lower such that you can charge less than competitors and still earn as much or more than them?

·      Cost advantage - Do you have some other cost advantage that allows you to charge less yet earn more than competitors?

·      Better access to capital - Do you have better access to the capital - debt or equity - necessary to compete in the space?

·      Product integration - Is your product so integrated in the processes, systems, and even products of your customers that they cannot easily or affordably switch away from you?

·      Brand - Is your brand so strong that customers will not easily break the emotional connection they have with your product?

·      Speed - Do you deliver with a speed that is unmatched in the market and needed by your customers?

·      Sales and marketing - Do you have a sales and marketing machine that cannot be matched in effectiveness by competitors?

Be Brutally Honest with Yourself. The beauty of business owners is their optimism. This can also be their undoing.

GROW and SELL Advisors, wholly-owned by Traversi & Co., LLC, is a premier sell-side M&A advisory firm – a boutique investment bank – serving the lower middle market.  Visit us here.

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