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.
Having Monopoly Control makes your business more valuable. In order to maximize your chances of being acquired for a premium price, commit to a product, service, or a bundle that does one thing well. Your aim should be to make that offering so irresistible that an acquirer will stop at nothing to get their hands on it.
Most companies do the opposite. They take their initial success and water it down by cross-selling additional products, leveraging their relationship with their customers to sell them merely good offerings on the back of their great product or service. The problem with wandering too far afield is that while add-on products may increase your revenue, they may also decrease your attractiveness to a strategic acquirer. Like being asked to buy a cable package with hundreds of channels when all you want is a few, acquirers don’t like buying things they will not use. They will often walk away from a deal where a great product has been watered down with dozens of less attractive products or service lines.
Build Your Moat:
Focus your limited resources on becoming so good in your niche that an acquirer reasons it would take too long, or cost too much to compete. Most small businesses with limited cash can only afford to get good at solving one problem for their customers.
Consider the following:
- Is there a layer of service you could add to differentiate your offering?
- How can you better brand your products and services?
- What is the one thing that customers care most about?
- What is unique about your business? How can you capitalize on that quality? If you can’t identify something unique about your offering, examine what your competitors are doing and what consumers aren’t yet getting from any source. Then weigh the benefits of offering it.
Monopoly Control is one of eight drivers of your company’s value. Get your score on all eight by completing your Value Builder Questionnaire.