The Ultimate Key to a Successful Business
It’s no secret. More than half of this year’s startups will fail within the next three years. More than 75% of them won’t last five years. Only 25% will make it.
So you have to ask yourself – “Will my business last?”
Do you as the owner have a clear vision? Does my business have an adaptable strategy that can change with the marketplace? Am I aware of my company’s financial condition? And, does your company have longevity? Or, as Warren Buffett will often ask before investing, does your company have economic moat.
Sometimes the wider the moat, the more distance you can put between you and your competition. Remember, you want to set your company apart. To do so, you want to or offer something different than what your competitors offer.
That way you stand out for customers.
Sometimes longevity – per Warren Buffett – can be dictated by five key traits.
No. 1 -- There is a strong brand
At one time, you could buy a cup of coffee at less than a dollar. At Starbucks, that same cup of coffee would cost you up to $5. That’s more than a 400% mark up for coffee, proving that power of a brand is powerful. It’s Starbucks’ moat. Starbucks has a moat. People pay through the nose for a cup of that coffee. Consumers are loyal to the brand.
No. 2 -- Switching costs may be too high
Comcast is an example. Once you’ve established your phone, Internet, and television through cable, it’s can be a costly pain to switch. That’s a protective moat, too.
Or, let’s say you’re a surgeon. After years of using a specific device, such as an artificial joint product, you’re asked to switch to another product. But in doing so, the surgeon may be required to change what makes him comfortable and familiar with his practice. Additionally, changing a surgical product would require new training, which results in lost time and revenue to the surgeon.
No. 3 -- The Network Effect
Apple is wildly popular. Millions of consumers have used its operating systems for years. The more consumers that use an Apple operating system, the more consumers enjoy the network effect.
No. 4 -- Cheaper cost
If your company can offer quality products at lower costs, such as Amazon.com or Wal-Mart, you can create economic moat.
No. 5 -- Intangible Assets
There are some companies that have a powerful advantage over others because of intangible assets, including patents, licenses, and brand recognition. If a company’s product is well protected with a patent, it’s tough to duplicate what’s protected.
In short, remember to set yourself apart with something unique. Create longevity.