🐵 Monkey Barriers

As a father, I’ve been to a fair number of zoos and have heard from a fair number of well-meaning volunteers that apes can’t swim. That’s not quite right but we’ll leave the specifics aside and use the analogy of a moat as a barrier. To keep the monkey see, monkey do, monkey business away, a business needs a barrier.

Someone with a lot of insights on moats is Pat Dorsey and we’ve covered his ideas in podcast form. He likes moats because they confer pricing power. If a business can raise prices without losing customers they keep their edge.

Here are some ways to maintain pricing.

Small drops in big buckets. See’s candy has an edge because it’s a small cost (chocolate) in the context of a larger event (celebrations). This is the same advantage say, that a dentist office’s billing software provider has.

Signaling. A Rolex and a Timex both do a certain job for their wearer, however they do other jobs too. A business owner needs to figure out if one job they’re hired for is to let their customers signal.

Switching costs. Dorsey said he’s not too concerned about Apple’s design or advertising, but “anything they can do to make that path dependence stronger — that once I have an iPhone, I want the next generation and next generation. That’s what strengthens their moat more than anything else.”

Intellectual property. Bob Iger praised Michael Eisner because he “re-founded” Disney and tapped into the pricing power by releasing classic movies (and merch) for The Little Mermaid, Aladdin, and Beauty and the Beast.

Network effects. (see yesterday’s email).

Geography. Brent Beshore is a proud midwesterner and said that he looks for companies in a niche and “not much natural competition.”

Whether a business moat or a metaphorical monkey moat, the longer a business can keep their edge, the better they’ll be.