What is ‘Sustainable Competitive Advantage’? Why is it important? Clearly many Growth or Scale Up Businesses are looking forward to an eventual sale. A time when the owners & investors realise the value of their business and walk away smiling!
We look at lots of articles about the factors affecting company valuation. American VC firm MCM Capital identify seven key areas. EBITDA Size, Revenue Trends, Profit Margins, Customer Concentration, Industry Concentration, Strength & Depth of Management Team and finally, Sustainable Competitive Advantage.
So some are financial, operational or ‘macro’. Not areas where marketers like M4G operate. But the final one, ‘Sustainable Competitive Advantage’ is where M4G can help.
‘Sustainable Competitive Advantage’ is clearly a good thing! The more of this you can demonstrate, the higher your valuation. We help Scale Up businesses build their very own Sustainable Competitive Advantage.
How do we create Sustainable Competitive Advantage? By building what Warren Buffet calls an ‘Economic Moat’. Here’s what he says;
‘We think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way — it’s just too risky. We don’t know how to evaluate that. And, therefore, we leave it alone.’
Very simply, if you have a moat that’s wide and sustainable, there’s the potential to command high margins. Which clearly adds to the value of your business. And boosts your ability to sell for a higher valuation.
In Moat Building, Cost Advantage, Scale Advantage and High Customer Switching Costs are all at play. At M4G our focus is what the article calls ‘Intangibles’. In other words, the strength (or weakness) of your brand.
At M4G, our process is to Identify, Create & Sustain your very own ‘Moat’. So you look & feel unique (even if you’re not). In that way, your brand contributes fully to a high business valuation.
Photo by Alex Paganelli, Unsplash