How Your Moat Impacts the Value of Your Business
April 12, 2022
What makes you tough to compete with?
It’s that thing that customers value but competitors can’t seem to match.
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What makes you tough to compete with?
It’s that thing that customers value but competitors can’t seem to match.
The word “optionality” comes up a lot these days, and you may wonder what exactly it means. In the context of business building, optionality is creating a company where you have lots of different avenues for reaching your goal(s).
Having optionality is the opposite of putting all of your eggs in one basket and is a common vein that runs through all of the value drivers we measure over at The Value Builder System™.
Before Jeff Bezos & Co. blew up traditional distribution channels, there was some value in being the local “guy” or “gal.” Being the local product retailer was a good business, and being a regional distributor of a popular line could make you a mint.
Those days are almost over.
Turning a service business into a product or software company can be tempting. While a typical consulting company may trade at a modest multiple of EBITDA, a fast-growing software company with sticky subscribers could sell at a double-digit multiple of revenue.
The difference is hard to ignore.
There’s a meeting that happens when an acquirer is looking to buy your company. You will not be invited to attend. The
When Steve Jobs returned to Apple in 1997, the company — once praised for simplicity and quality — had had just experienced its worst-ever financial quarter. Jobs examined the future product roadmap. He felt a third of Apple’s products were “incredible.” The rest? Either “pretty good” or “businesses we didn’t need to be in.”
Warren Buffett is famous for investing in companies with a competitive “moat” around them. Buffett defines a moat as something that makes your business challenging to compete against and impossible to copy. Buffett argues that your moat allows you to avoid price comparisons, which enables better margins.
Warren Buffett is famous for investing in companies with a protective “moat” around them. The deeper and wider the moat, the harder it is for competitors to compete. In addition, an enduring competitive advantage also gives an owner more control over pricing, which increases both profitability and cash flow.
What makes you tough to compete with?
It’s that thing that customers value but competitors can’t seem to match.
The word “optionality” comes up a lot these days, and you may wonder what exactly it means. In the context of business building, optionality is creating a company where you have lots of different avenues for reaching your goal(s).
Having optionality is the opposite of putting all of your eggs in one basket and is a common vein that runs through all of the value drivers we measure over at The Value Builder System™.
Before Jeff Bezos & Co. blew up traditional distribution channels, there was some value in being the local “guy” or “gal.” Being the local product retailer was a good business, and being a regional distributor of a popular line could make you a mint.
Those days are almost over.
Turning a service business into a product or software company can be tempting. While a typical consulting company may trade at a modest multiple of EBITDA, a fast-growing software company with sticky subscribers could sell at a double-digit multiple of revenue.
The difference is hard to ignore.
There’s a meeting that happens when an acquirer is looking to buy your company. You will not be invited to attend. The
When Steve Jobs returned to Apple in 1997, the company — once praised for simplicity and quality — had had just experienced its worst-ever financial quarter. Jobs examined the future product roadmap. He felt a third of Apple’s products were “incredible.” The rest? Either “pretty good” or “businesses we didn’t need to be in.”
Warren Buffett is famous for investing in companies with a competitive “moat” around them. Buffett defines a moat as something that makes your business challenging to compete against and impossible to copy. Buffett argues that your moat allows you to avoid price comparisons, which enables better margins.
Warren Buffett is famous for investing in companies with a protective “moat” around them. The deeper and wider the moat, the harder it is for competitors to compete. In addition, an enduring competitive advantage also gives an owner more control over pricing, which increases both profitability and cash flow.
