Building Moats Around Service Firms

                            Wide-Moat Service Firms

Yesterday's Chicago Tribune had a nice story on a strategy companies can use to better protect their market share, revenues and margins from inroads by competitors (see: "Firms Made Impregnable" by Andrew Leckey http://www.chicagotribune.com/business/yourmoney/chi-ym-moats-0819-cpaug19,0,1506389.story).

Leckey makes a great case for why companies need to develop a wide moat. The moats are made when companies create durable competitive advantages that are hard to breach. Think of the buying scale Wal-Mart can utilize that its competitors can't. Think of those firms with huge patent inventories. Think of firms with phenomenal brands. Think of companies with favorable government licenses (e.g., gambling permits).

Service firms are notably absent in my mind when it comes to developing moats. It's a rare consultancy or systems integrator who actually creates and brands unique intellectual property. Service firms are more often known for fast following of someone else's ideas. In fact, fast followers are experts at breaching someone else's moat.

When you do see moat building in professional service firms, it often takes the shape of trying to ingratiate oneself to a client and keeping out other service firms via fawning and client entertainment. That approach is quite passe today. Clients are smarter and want maximum value from their consultants. They don't want generalists anymore.

Today's best advisors are those who really specialize and build their brand around that specialty. I've done that before and I'm repeating a second time in my career. For example, I've now got a huge database of almost 4000 tech buyers globally who are identified by their proclivity to be Innovators, Early Adopters, Early Majority, Late Majority or Laggard buyers of tech. That's what prospective clients get the most excited about: something no other tech strategy and marketing strategy firm has. Are you building a wide moat or still trying to build better seige engines to breach other firms' moats?