Moat
How defensible is your position?
In business, I look for economic castles protected by unbreachable moats - Warren Buffett
Perceive: What Is a Moat?
A moat is a sustainable competitive advantage that protects your business from competitors. It's what lets you keep the value you create rather than having it competed away.
Types of Moats
| Moat Type | Description | Example |
|---|---|---|
| Network Effects | Value increases with users | Facebook, Ethereum |
| Switching Costs | Painful to leave | Enterprise software, banks |
| Economies of Scale | Cost advantages at size | Amazon, Walmart |
| Brand | Trust and recognition | Apple, Coca-Cola |
| Proprietary Technology | Hard to replicate IP | Google's algorithm |
| Regulatory | Licenses, patents, approvals | Pharma, utilities |
Moat Durability
Not all moats are equal. Strong moats:
- Widen over time (get stronger)
- Require continuous investment
- Are hard to replicate even with capital
Weak moats:
- Erode over time
- Can be copied with enough investment
- Depend on factors outside your control
Question: Why Do Moats Matter?
Without a moat, any success attracts competition. Competition compresses margins. Eventually, no one profits.
The Value Capture Problem
Creating value isn't enough. You must capture it:
- No moat: You create value, competitors take it
- Weak moat: You keep some value temporarily
- Strong moat: You keep most value indefinitely
The AI and Crypto Question
How will AI and crypto change moat dynamics?
| Traditional Moat | AI/Crypto Impact |
|---|---|
| Data | AI commoditizes analysis; proprietary data becomes more valuable |
| Network Effects | Token incentives can bootstrap networks faster |
| Switching Costs | Interoperability reduces switching costs |
| Brand | Reputation becomes verifiable on-chain |
Act: How to Build and Maintain Moats
1. Platform (Physical Assets and Tools)
Build infrastructure others depend on:
- Proprietary Data combined with Compute Power
- Physical assets and distribution networks
- Developer platforms and ecosystems
2. Process (IP)
Develop trade secrets and know-how:
- Operational excellence
- Unique methodologies
- Codified best practices
3. People (Culture)
Build a culture that attracts and retains talent:
- Values and principles
- Technical capabilities
- Onboarding and development
Marketplace Moats
- Stakeholder Intelligence: Know your ecosystem better than anyone
- Context Mapping: Understand the jobs to be done
- Distribution: Own the path to customers
Financial Moats
| Element | Moat Contribution |
|---|---|
| Cost Structure | Lower costs = pricing power |
| Cash Generation | Fund investment in widening moat |
| Revenue Diversity | Reduce dependence on any single source |
Moat Assessment
| Question | Score |
|---|---|
| What stops a well-funded competitor from copying you? | ?/5 |
| Is your moat getting wider or narrower? | ?/5 |
| How long would it take to replicate your advantage? | ?/5 |
| What investment is required to maintain your moat? | ?/5 |