Some large companies have a so-called “moat”, a competitive advantage that seems impossible to match.
Amazon has built its delivery network and can charge a subscription and deliver packages quickly. Replicating that requires significant capital and time, and the results will be questionable.
Costco has a cost advantage moat built on a membership model and massive scale.
Coca-Cola has global brand strength, a distribution network, an outstanding product (with protected IP), and pricing power.
There are also plenty of large businesses without a competitive advantage. The result is simple: low growth, no pricing power, and low (or lack of) profitability.
This is also a description for the majority of small businesses.
So, how do you move to the side where the grass is actually greener? You need to create a moat. No, not the type of moat that the big companies have.
1.0 The relationship moat
Small businesses can’t invest as much as Amazon. They can’t out-scale Costco. Competing on those terms is a losing game before it starts.
But here’s what a small business can do that Amazon never will: remember your name.
Most people have their favorite restaurants, where they go more often compared to other restaurants. It might not be the cheapest, but it is the best overall experience for the price. The employees greet you when you walk in, and they might remember that you don’t eat mushrooms, or they might ask if you want the regular drink. This experience feels personal, and once it is established, the customer feels the competitive advantage.
The same applies to your barber, accountant, and mechanic.
True story, back in October, I had an appointment to bring my car in for a regular check-up. One day before, I had to bring my wife to the hospital, and spent the night there, and I missed the appointment. They gave me a call the next day, and I apologized and explained the situation. I made a new appointment, and when I was there, the first question was “How’s everything going at home?”
No large business will ever match that.
2.0 The expertise moat
Another moat available is deep specialization. An expertise that either serves one industry or solves one specific problem. This cannot be developed by generalists.
A tax advisor who specializes only in freelancers (or expats)
A physiotherapist who focuses exclusively on runners
A lawyer who only handles employment disputes for small businesses
A marketing consultant who only works with restaurants
A bookkeeper who serves only e-commerce businesses
If you are the go-to person for that specific problem, going to others will feel risky.
3.0 The community moat
This is very, very underrated. Local businesses are a part of a community in a way that no large company can ever be.
The coffee shop that sponsors the local football team, the bakery that donated to the school fundraiser, the gym owner who shows up at the neighborhood events, or the consultant who gives free lessons in the high school five times a year. The list goes on.
People want to support businesses they feel connected to. Give them a reason to feel that connection.
The catch: none of this happens overnight. Building any of these moats means showing up consistently, being reliable, following up, and doing good work (regardless of the size of the job).
It’s not just about retention of existing clients.
A happy customer will refer others.
When the reputation is built, and word of mouth takes off, that’s when the moat is there, and any competitor will struggle to beat you.