Do You Have A Moat?

In business strategy, a "moat" is a metaphor borrowed from medieval castles — just as a water-filled trench protected a fortress from attackers, a competitive moat refers to a durable advantage that protects a company from rivals eroding its market position and profitability.

The term was popularized by Warren Buffett at Berkshire Hathaway, who has long said he looks for companies with "wide moats" when investing. The idea is that a truly valuable business isn't just profitable today — it has structural characteristics that make it hard for competitors to replicate its success over time.

Common types of moats include network effects (a platform becomes more valuable as more people use it, like Visa or LinkedIn), switching costs (it's painful or expensive for customers to leave, as with enterprise software), cost advantages (scale or proprietary processes that let a business undercut rivals), intangible assets (brands, patents, or regulatory licenses that competitors can't easily acquire), and efficient scale (a market that only supports one or two profitable players, discouraging new entrants).

When a leader talks about "widening the moat," they mean investing in ways that strengthen these structural advantages. When analysts say a moat is "narrowing," they're warning that competitors or market changes are weakening what once made the company difficult to challenge.

The concept is especially useful in strategic planning because it encourages leaders to differentiate between advantages that are temporary (like a hot product or a price cut) and those that are structural and self-sustaining. An educational institution can survive without a moat — but that stability is fragile if nothing prevents others from doing exactly what it does. See our Substack article on selling capabilities versus products in the education field.