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Digging a Moat with Switching Costs: Integrate with customer business processes upfront costs of implementation yield
payback from renewals. Sell a solution that includes an ongoing service relationship, not just a one-time product purchase
elevators, jet engines, deepwater rig parts, etc. Customer stickiness is higher with products/services that address pain points
rather than revenue opportunities: Ecolab, Stericycle, Aon, A.J. Gallagher, etc. Or, provide a product/service with a high
benefit/cost ratio: Fasteners, compressors, etc.
Digging a Network Effect: This is one of the few areas where "first-mover advantage" can be truly worthwhile. Otherwise,
the phrase is often code for "We got into this market first, which means we can make a lot of mistakes that others can learn
from and subsequently crush us." Scaling quickly is key, as CoStar and eBay highlighted. Position yourself between
fragmented groups of suppliers and users (C.H. Robinson, Edenred, Fastenal, etc.). Watch for large groups of users who
can establish critical mass with a competing network think BATS disrupting Network.
Digging a Cost Advantage-Based Moat: You can build a process-centric moat, but the advantage is temporary and
complacency will kill you. Scale means winning through attrition fight the war, not the battle. Or look at niches, but size can
bring competition. Grow via expansion into complementary markets, overall scale, and be comfortable with not growing at
all.
Digging a Technological Moat: Be willing to kill your own business. Disruption and commodization are the long story arc of
tech. Have or acquire the moral authority to do case in point, Intel. And don't ignore the inevitable looking at you,
Garmin.
Digging a Moat in Industrials: Industrial markets are often mature and cyclical, so moat are frequently built or destroyed
via acquisitions. Look for small and complementary deals. Big deals in new areas can be deadly. Big fish in small ponds are
successful and rich. Thinks Scott Miracle-Gro in lawn care, Middleby in commercial kitchens, Graco in pumps and
sprayers.
Digging a Moat in Banking: This is a commodity business, so keep operating, deposit, and credit costs low. Controlling
operating and deposit costs means management doesn't have to "reach" on credit decisions: M&T, Wells Fargo, US
Bancorp, etc.
Digging a Moat in Consumer Brands: Look for longer product cycles to reduce fashion risks: watches vs. handbags vs.
shirts. The Holy Grail is maintaining exclusivity and generate volume: Polo, Tiffany, Coach, etc. Switching costs are low, so
never give consumers a reason to switch.
Management Acid Test: What are you doing to build the company's moat, or to widen the moat you already have?