Warren Buffett famously invests in businesses that have what he calls a protective “moat” around them – one that inoculates them from competition and allows them to control their pricing.
Big companies lock out their competitors by out-slugging them in capital infrastructure investments, but smaller businesses must be smarter about how they defend their turf. Here are four ways to deepen and widen the protective moat around your business:
Get certified
Is there a certification program that you could take to differentiate your business? We previously worked with a Western Canadian manufacturer that was seeking to expand into the healthcare sector. The company received its ISO 13485 medical devices certification, allowing it to distinguish itself from its peers and pursue additional opportunities within the healthcare sector. There was lots of paperwork and training involved, but the certification process acts as a barrier against other companies competing against them until today.
In your line of business, is there a certification you could get that would make it more difficult for others to compete with you while enhancing your industry reputation?
Create an army of defenders
Ecstatic customers act as defenders against other competitors entering your market, a factor that has enabled companies like Trader Joe’s to defend their market share in the bourgeois bohemian (bobo) market, despite a crowded market of stores hawking groceries.
Get your customers to integrate
Is there a way you can get your customers to integrate your product or service into their operations?
The basic switching costs of Customer Relationship Management (CRM) software are virtually nil. Everyone from 37signals to Salesforce.com will give you a free trial to test their software.
The real expenses associated with changing CRM software only come when a business starts to customize the software and integrate it into the way they work. Once a sales manager has trained his/her salespeople in creating a weekly sales funnel in a CRM platform, it won’t be easy to convince the team to switch software at that point.
Food for thought: Can you offer your customers training on how to use what you sell to make your company stickier?
Become a verb
Think back to the last time you looked for a recipe. You probably “googled” it. Part of Google’s competitive shield is that the company name has become a verb. Now every time someone refers to searching for something online, it reinforces the competitive position of a single company.
Is there a way you could control the vocabulary people use to refer to your category or specialty?
Conclusion
Widening your protective moat triggers a virtuous cycle: differentiation leads to having control over your pricing, which allows for healthier margins, which in turn leads to greater profitability and the cash to further differentiate your offering.
If you’re wondering how to further differentiate your business, contact us today to find out how we can help you!
