Why are we still talking about ‘moats’?

It is fashionable these days to talk about business moats. This is the term Warren Buffet coined to describe a company’s ability to defend its competitive advantages. It makes perfect sense: try to create value in a way that is not easy to copy.

But we don’t like it.

Firstly, the metaphor is all wrong. Do moats protect castles? Not really. They could be filled and easily crossed with a battering ram. Do walls protect inhabitants? Yes, unless someone wheeled a massive trebuchet into range and started firing boulders or diseased cows over the top. The advent of gunpowder in the early modern period made moats and castles redundant. Fixed defences have always been susceptible to mobility. Just ask any French poilu who watched the Germans drive around the ‘impregnable’ Maginot Line in 1940.    

Secondly, it creates a false sense of psychological safety. Castles were symbols of power, and moats symbols of safety. You could feel safe but may not actually be safe. The same goes for economic moats. You may believe you are safe, but sudden shifts in consumer behaviour, technology or product innovation will leave you exposed. Most moats we hear are not moats at all – they are, at best, temporary strengths. If competitors cannot breach your moat they will find a way to change the game. Like the Germans in 1940, they will drive round it. Rely on them and you could be watching your customers stream away from the safety of your battlements. 

As a founder, you are far better devoting time and energy to developing strategic sensitivity, the ability to spot, interpret and act on important signals. This helps you quickly respond and adapt to changes in the market and or inside your company. Dynamically iterating your business model will keep you safer than any moat, perceived or real. 

And why are you thinking defensively anyway? The last word goes to Sun Tzu: ‘Attack is the secret of defence; defence is the planning of an attack.’

UP AND TO THE RIGHT.