Determining whether a business has a durable competitive advantage, or moat, is an important step in the valuation process. Without a moat, over time a business’s product and services will become increasingly commoditized as competitors enter the market and drive down margins.
Michael Cusumano, a professor at MIT, has written an interesting book, Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World, on six critical principles that drive successful companies, particularly technology companies. The book is the fruit of thirty years of experience studying successful companies.
As an investor, you need to become an expert in identifying moats. This is harder than it looks. Developing real skill in this area will give you an edge.
In the following slide presentation, Cusumano focuses on platforms: what they are and how they can provide staying power.