Business Strategy
Definition
A sustainable structural advantage that protects a business from competition, allowing it to maintain above-average returns over a long period — the business equivalent of a castle's defensive moat.
The term 'economic moat,' coined and popularized by Warren Buffett, describes the durability of a competitive advantage. A business with a wide moat can maintain pricing power, customer loyalty, or cost advantages over competitors for years or decades — not just quarters. Identifying, building, and widening a moat is a central objective of long-term business strategy.
Moats take several distinct structural forms. Network effects occur when a product becomes more valuable as more people use it (Visa, Airbnb, LinkedIn) — new entrants face a chicken-and-egg problem that is extremely difficult to overcome. Switching costs create friction that makes customers reluctant to leave even when alternatives exist (Salesforce, SAP, Oracle). Cost advantages arise from economies of scale, proprietary processes, or unique access to inputs that allow the business to undercut competitors while maintaining margins. Intangible assets — brands, patents, regulatory licenses — prevent direct imitation. Efficient scale describes markets where a limited number of players can serve the total demand profitably, making new entry economically irrational.
For early-stage companies, the question is not just 'do we have a moat' but 'what moat are we building and how do we measure its width?' A SaaS business with low switching costs and no data advantages is racing against commoditization; one with deep workflow integrations and proprietary training data from customer usage is building durable defensibility.
Moat analysis also matters in competitive intelligence. Understanding a rival's moat reveals how to compete against them: attacking a brand moat through performance marketing works differently than attacking a network effects moat, which may require a different market segment entirely.
Investors at every stage evaluate competitive moat as a primary predictor of long-term business value. A startup without a credible moat thesis will face harder fundraising conversations and lower valuations — even with strong current revenue. More importantly, a business without a moat faces margin erosion as competitors undercut pricing and acquire customers at equal efficiency.
A business strategy consultant can help identify which moat-building opportunities fit your specific business model, prioritize investments that widen defensibility, and articulate the moat thesis clearly for investor presentations and board discussions.