The idea of a Moat was conceived in medieval times as a way to protect a castle or fort. The construction of such a ditch would keep possible attackers out of the fort and would allow the castle and surrounding area as a safe haven. Chateau Gaillard was constructed in the 12th century by Richard the Lion-Heart and was declared to be Gaillard (word meaning “saucy” or “cheeky”) because it was the strongest castle of it’s age.
Having a moat guaranteed that the castle could not be attacked easily and allowed the inhabitants a sense of security. However, in 1204, Phillip II of France captured Chateau Gaillard after isolating the fort by a double ditch and using latrine lines to penetrate the fort.
Just as with medieval castles, businesses should consider building competitive moats. These competitive moats may be specific to product differentiation, intellectual property, or even capital investment that others cannot match. However, just as with Chateau Gaillard, it is easy to become convinced that prior success from your competitive moat will continue and become unaware of new threats to the previously successful competitive moat.
During a recent night out with my wife, we met a bar owner that had just opened up a bar in a rural town. The bar was a new establishment that had recently been opened. The bar owner talked about how the bar had been busy since the day they opened it and had been very successful. He was very enthusiastic about the new business and was clearly optimistic about the future of the business. So much so that one month into the business, he had already worked out a deal with the commercial landlord to take down another 3,000 square feet of space adjacent to the space he was already renting.
After chatting more about the operation of the new establishment and understanding his level of enthusiasm, we moved into a more sobering (no pun intended) part of the conversation. The part about how to protect his “competitive advantage” or more aptly termed “competitive moat”.
The questions that I asked and how he answered the questions are endemic of many companies that go through a growth curve or a quick success pattern when first starting:
I was a bit surprised after asking this question that he did not have a quick response, but instead a question back to me: “what do you mean”? I asked him what types of local or segment changes could create a problem for the profits that the company was making thus far. He hesitated and answered “being able to hire and maintain good employees; I don’t have a background in HR or employee retention”. I then asked him what the process was for hiring and maintaining good employees. His response was even more surprising “I hire all employees and train them”. We discussed the possibility of using an outsourced HR agency which specializes in hiring and retention.
The owner explained that he had been in the rural area for years and that there weren’t really any bars like theirs that offered live music and decent food. More importantly he explained, there was an outdoor area that would allow for outdoor dining and live music when the weather got better.
I asked him if he would be willing to take a couple of important steps: First, create a menu that is memorable and get their customers to begin raving about the most desirable items on the menu. He said that would be no problem, but he really didn’t feel that the food would be a true differentiator. However, he said he would focus on this area. Second, begin identifying local bands that were a true “attraction” and see if he could get an exclusive deal with them to only play at his location in this small city. He said he could, but the cost may be too constrictive. I offered that if the band is good enough, a possible local icon, visitors to his bar may be willing to pay a cover charge which may make the event seem even more exclusive.
The most surprising response the bar owner gave was the answer to this question. He responded “the people in this town won’t allow franchises and large corporations to enter our market”. After a bit of a pause, I offered a few thoughts to this response. First, the county surrounding the bar had grown in the past 10 years by 40%, meaning 4 out of every 10 people were now no longer the loyal customers of the past. Second, down the road a WalMart and McDonalds were thriving and busy at all times. Lastly, the town had become a thoroughfare for travelers and a destination for bikers, motorcycle tours and other groups looking to get out on the open road.
After our conversation, the bar owner asked me for my number with a somewhat grim face. As we left the bar, I explained that he was in a great position. Although he had these things to think of and figure out how to resolve, he was at least doing it proactively in advance of a company failure. Much like Chateau Gaillard, there is always time to think ahead and create a plan to evolve your competitive moat to keep up with changes within the strategic landscape. Waiting until the change is upon your company is when it may be too late.
At Enlighten Fractional we have been helping companies create competitive moats and thinking of the trojans outside the gates for years. We are available to help companies in growth and transitional phases increase revenues while decreasing or maintaining operational costs, resulting in higher profit margins and operational scalability.
