Widening the Moat: Business Advice from Warren Buffett

It was only a matter of time before I found some way to integrate my most recent trip to The Berkshire Hathaway Annual Shareholder’s Meeting into a blog post. For those that do not know, Berkshire Hathaway is the conglomerate controlled by famed investor, Warren Buffett. The annual shareholder’s meeting is nothing short of the “Woodstock of Capitalism” and surpassed every expectation I could have had.

The main event is a question and answer session with Warren Buffet and Charlie Munger, his long time business partner and witty sidekick. Questions are notoriously picked at random, never screened, and can span from business, to personal, to life advice and often are light hearted. The marathon five hour session is as much entertainment as it is educational. The greatest take away from the meeting was most certainly Buffet’s response to the question, “How do you react to an economic downturn in your businesses?” Without hesitation, Buffett replied, “widen the moat.”

Historically, the term “moat” was used to describe the invasion-prohibiting river around a castle, but Buffett often uses it to define the space between him and any competition. An “economic moat” of sorts. He went on to state the obvious, but not often realized. When the economy is down, most of your competition is going to be pulling back and cost-cutting. If you are in a good business that has longevity, there is no easier time to take the offensive and “widen the moat.” He went on to explain, “There is no fight when your enemy is willingly backing down.”

Though it is not always easy for any company to do in a downturn, widening the moat is what makes future downturns less severe on a business. When you are distanced from your competition, as long as you haven’t distanced yourself into a bad product or service, you are insulated from any downturn. You become more consistent and less volatile.

For a lot of organizations, their online presence can often be a great moat widening asset. Our firm recently implemented a self service portal for one of our clients so that their clients could manage their accounts online instead of through a representative. When no one else in their industry offered such a solution, it proved to be an almost instant success for maintaining current business and attracting new business. Additionally, we’ve had other clients widen their moat by building a better list of contacts, and implementing a greater level of interactivity with their customers.

So how can you widen your organization’s moat? What is going to insulate your from the next economic downturn?