Building a Moat

I recently sat down with a friend who works in a family office, targeting acquisitions in the $20M–$150M range. They’re a big player in their space, and one thing he kept referencing was the importance of “barriers to entry” or a “moat”. That term comes up a lot in MBA programs and corporate strategy circles - as a way of describing how a company can defend its market position from competitors.

And sure, when you’re a large company with significant market share, that makes perfect sense. Big players often shift into defence mode at some point. They’ve made their money and don’t want to lose it.

Ask the beer companies how they feel about their eroding market share: In 2010, the top four beer companies controlled over 90% of the U.S. market. By 2020, that number dropped to around 78%, largely due to the rise of local craft and mid-sized brewers who focused on community and unique offerings. Big Beer probably wish they had a bigger moat.

But here’s the thing: for small businesses (especially main street or lower middle market ones) a “moat” isn’t all it’s cracked up to be. Or at least, not in the same way it is for big companies. A true moat at this level is rare. If you’re a small company doing $1 to 5 million in revenue, odds are you’re not defending market share - you’re trying to gain it. You’re not fending off invaders - you’re still storming the castle.

Moats Are Built, Not Bought

Moats come in many forms:

• Brand loyalty (think: Nike or Apple)

• Proprietary technology

• Network effects (Facebook, Uber)

• Cost advantages

• Exclusive contracts or geographic rights

• Location / real estate

These are great, but let’s be honest - they’re mostly out of reach for the average small business owner. But that doesn’t mean the concept is useless. You just need a different approach.

A moat doesn’t have to be sexy. It doesn’t need to be patented. Sometimes your moat is just being responsive, reliable, and doing the basics better than your competitors.

Playing Offence

I’m currently working with a trades-related business on a project for my home. It’s been nearly four months since I first contacted them. The work hasn’t started yet. On average, it takes 3–4 weeks to get a reply between emails, site visits, and quotes. Nice people - but this kind of communication wouldn’t survive in most industries.

You don’t need AI, VC funding, or a revolutionary idea to build a moat in this scenario. Just answer the phone. Show up when you say you will. Send a quote within 24 to 48 hours. Do what you promised. In an industry full of disorganization and ghosting, basic reliability is the moat.

So do the basics right. Stop thinking about your moat. Play some offence. And go find new customers!

Simplicity Scales

Nick Huber, an entrepreneur who built a mini-empire in the self-storage industry, shared a story that really resonated with me. He used to judge college entrepreneurship pitch competitions - until he got so frustrated with the obsession over disruption and reinvention that he stopped.

“Entrepreneurship is about making money,” Huber said. “It doesn’t matter how new or disruptive your idea is. All that matters is providing value to a customer, making money, and building a sustainable company.”

He was often met with blank stares. “Why copy something that already exists?” the students would ask. Because, as Huber put it, it’s already working. Why not emulate success rather than chase theoretical unicorns? Making minor tweaks to solve customer pain points in existing industries can drive big results.

Final Thoughts

If you’re building a business and you’re under $5M in revenue, don’t worry so much about having a moat right away. Worry about winning customers. Serve them better than your competitors. Then, over time, your systems, reputation, customer base, and culture become the moat.

Moats don’t often start the game. They’re the result of what you’ve built after you’ve proven you can play.

Disclaimer: I am (thankfully) not a lawyer, nor am I an accountant. If any of this sounds like legal/financial advice, it's not. Take everything I say with a grain of salt. But not too much - I hear it's bad for your blood pressure.