Is Your Optometry Practice Protected By An Umbreachable “Moat”?
Two quotes by American business magnate, Warren Buffet summarize what Bishop William Lawrence University Professor at Harvard Business School, Professor Michael Porter teaches about strategy.
The first quote is: “A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable.“
The second quote is: “No formula in finance tells you that the moat is 28 feet wide and 16 feet deep. That’s what drives the academics crazy. They can compute standard deviations and betas, but they can’t understand moats.”
In 1979, Michael Porter introduced and explained the Five Competetive Forces that shape strategy. His model stood the test of time and is taught in every Master of Business Administration MBA program, every business school, and board rooms all over the world. The model provides an understanding of the overall industry you are working in, your business, and the interplay between both of them and their influence on your business position in the industry. According to Porter, the five forces that shape your business are the number and power of a company’s competitive rivals, potential new market entrants, suppliers, customers, and substitute products influencing a company’s profitability.
Both Buffet’s quotes emphasize and point to Porter’s competitive advantage, in general, relating to all five forces illustrated or described as a castle “moat”. Moreover, Potential new market entrants or the barrier of entry is in particular what first catches your eye or comes to your mind. If the barrier of entry is low it consists of a serious competitive threat and puts your business in a challenging position characterized by reduced profitability. On the other hand, if the barrier of entry is high, you save your business from potential new entrants, you put your business in a strong and competitive position, and you protect your profitability.
It all boils down to how good you are at creating “moats” that allow your company to fend off new businesses to come into your market and take your existing market share. keep yourself updated about the market insights and trends happening around your business. As soon as the barrier of entry lowers expect a new entrant to reach out to your market. Therefore you should construct a new “moat” to position your business in the protected area keeping the threat at bay. In your practice “Moats” include promoting differentiation, developing and strengthening your business brand equity, mastering economies of scale and economies of scope and identifying markets where each one works, switching costs, maintaining strong distribution channels, utilizing the network effect by increasing the subscribers to your products, and learn to capitalize on the first-mover advantage even in the absence of network effect. In other words, you need to be entering businesses that have a long-lasting competitive advantage (Moat) that does not require you to invest back in the business to keep its competitive advantage.