What is Competitive Moat in business and how to build one - Deepstash

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Economic Moat

Economic Moat

An economic moat refers to a sustainable and enduring competitive advantage that companies can use to maintain profitability over the long term.

An example of an economic moat would be a brand name, intellectual property like a patent, or control over distribution channels.

The term was coined by Warren Buffet.

Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.

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3 Key Elements of the Economic Moat

3 Key Elements of the Economic Moat

1) Cost advantage - In this case, it is a cheaper cost per unit to produce or buy than its competitors.

2) Barrier to entry - It can be as simple as large fixed costs, limited availability of resources, or high capital costs.

3) Network effects - This is where other participants within the market that are reliant on each other for success and benefit from that success indirectly by getting what they need from one another's

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Competitive Advantage

Competitive Advantage

A company with an economic moat is less likely to be disrupted by a competitor.

This is because while there are multiple companies competing, the company with an economic moat can take advantage of its lead in the market and maintain it.

Economic Moats create barriers for competitors and make it harder for them to enter the market.

This gives a company more time to plan ahead and develop new products before competitors even enter the market.

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Finding a Market

Finding a Market

It is difficult to target the richest market for your product or service because of the sheer number of competitors.

The key to finding a low-competitor market is understanding what the customers are actually looking for and understanding their decision-making process.

In order to find a low-competitor market, the company needs to do some research and understand the decision-making process of its customers.

This includes observing how they compare products in their minds and what factors are most important in their decision-making process.

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Creating Economic Moat

Creating Economic Moat

The economic moat is created by blocking out competitors from entering the market and cutting off their supply chain.

Companies like IBM and Coca-Cola successfully maintained their economic moats by utilizing a variety of strategies such as Coca-Cola patenting its secret recipe.

Businesses that establish an economic moat for themselves have a competitive advantage over their peers.

They are able to charge a price premium for their products or services and maintain profitability without much competition.

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5 Ways A Company Can Build An Economic Moat

5 Ways A Company Can Build An Economic Moat

  1. Create and deliver high-quality products or services that customers are willing to pay.
  2. Enhancing customer experience
  3. Build a proprietary technology
  4. Invest in intellectual property
  5. Find profitable niches

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Management concepts explained like tweets.

Any company with a competitive advantage can be considered to have an economic moat.

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