Think of it as Yoga for the brain, we are going to stretch a bit.
Who Really Owns Your Business?
If someone else controls your money, customers, suppliers, technology or ability to deliver, how much of the business do you truly own? -- YNOT!
How to Control What You Build, Create a Moat and Survive the Next Wave of Change
Ask an entrepreneur who owns the business, and the answer will usually be immediate:
“I do.”
Perhaps that is legally correct. Their name may appear on the incorporation documents, bank accounts and tax returns. They may own all the company’s stock.
But legal ownership and practical control are not always the same thing.
If your company has substantial debt, your lender has influence over its future. If you finance your customers, those customers control part of your cash flow. If one or two clients generate most of your revenue, they may have more power over your company than you realize.
Perhaps you depend on an exclusive vendor agreement. The contract may give you access to a valuable product, but the vendor can also determine whether you will continue to have something to sell.
You may own the company on paper while your lender, customer, supplier or technology platform controls whether it survives.
The Ownership Illusion
A business can look independent while being completely dependent on outside organizations.
Consider the risks:
A bank can refuse to renew your credit line.
A major customer can move to a competitor.
A supplier can terminate your agreement.
A manufacturer can raise its prices.
A marketplace can change its rules.
A social network can limit your reach.
A search engine can remove you from its results.
A software provider can increase its fees.
A landlord can refuse to renew your lease.
A government can change the regulations governing your industry.
Any one of these events can destabilize a company.
I experienced this firsthand while selling a successful product through Amazon. Amazon could see the sales, the customers, the pricing and the demand. Once the product proved profitable, Amazon was in a position to find another manufacturer and introduce a competing version.
I owned the product, but Amazon owned the marketplace and the relationship with the customer.
The company that controls the road between you and your customers may have more power than the company manufacturing the product.
This does not mean you should refuse to use Amazon, Google, Facebook or other major platforms. Those platforms can help a company grow faster than it could independently.
But you should never confuse access with ownership. Borrowed land is still borrowed land.
Temporary Success Can Be Dangerous
Many businesses made extraordinary amounts of money during the COVID era. They happened to be selling the right products or services at exactly the right time.
Some entrepreneurs assumed that the demand would continue. They borrowed money, expanded locations, increased staffing and built permanent expenses around temporary conditions.
Then the world changed again.
Consumer behavior shifted. Interest rates increased. Supply chains normalized. People returned to offices and resumed older habits. Businesses that had expanded during the boom suddenly found themselves carrying debts that their new revenue could not support.
Their success had encouraged them to become more vulnerable. That is one of the great dangers of rapid growth: it can make temporary conditions appear permanent.
Topgolf and Callaway provide an interesting example of how changing expectations can affect even very large companies. The combination was based on the belief that golf entertainment, equipment and related experiences would reinforce one another. But a corporate strategy that makes sense under one set of conditions may become less attractive when consumer behavior, operating expenses, debt costs and investor expectations change.
The lesson is not that companies should avoid expansion. The lesson is that growth purchased with debt reduces your ability to survive when your assumptions prove wrong.
Debt can accelerate a company, but it can also remove the steering wheel.
You Don’t Need to Be the Best
Entrepreneurs are frequently told they must build the best product.
That is not always true. To become very successful, you do not necessarily need to be the best. You need to be unique—and difficult to replace.
You need a secret sauce.
That secret sauce is what business strategists call a moat: a defensive advantage that makes it difficult for competitors to copy your product, take your customers or enter your market.
A moat can come from many places:
Proprietary technology
Patents or intellectual property
Specialized knowledge
Exclusive contracts
Unique manufacturing capabilities
Proprietary data
Strong customer relationships
Brand loyalty
Distribution control
Network effects
Regulatory approvals
Capital requirements
A process developed through years of experience
The strongest companies usually have more than one moat.
A patent may eventually expire. A competitor may reproduce a technological advantage. A supplier may terminate an exclusive agreement. Customers may move to a new platform.
Multiple moats create multiple layers of protection.
The Capital and Technology Moat
SpaceX is a powerful example of a company protected by both a technological and capital moat.
A competitor cannot simply decide to build another SpaceX over the weekend. It requires billions of dollars, advanced engineering, specialized manufacturing, launch facilities, government approvals and years of accumulated experience.
Even Jeff Bezos, with enormous resources available through Blue Origin, cannot instantly reproduce everything SpaceX has learned.
Money provides access to the race, but money alone does not guarantee that you will catch the leader.
SpaceX’s advantage does not come from one secret formula. It comes from capital, engineering, infrastructure, institutional experience, launch history and the ability to learn from repeated attempts.
That combination is far more difficult to copy than any individual product.
Does Artificial Intelligence Have a Moat?
Artificial intelligence offers a more complicated example.
ChatGPT is a product created by OpenAI. OpenAI has valuable models, research talent, brand recognition, accumulated knowledge and a very large user base.
However, OpenAI does not manufacture the specialized computing hardware on which its models operate. That creates dependence on outside infrastructure and business partners.
Meanwhile, companies such as Microsoft, Nvidia and Google control different pieces of the AI ecosystem.
Microsoft has enormous capital, cloud infrastructure, enterprise relationships and global distribution. Nvidia controls much of the specialized hardware used to train and operate advanced AI. Google possesses extensive AI research, enormous data resources, worldwide distribution and its own specialized chips.
For these companies, competing in artificial intelligence is expensive—but possible. They already possess much of the capital, infrastructure and expertise required to enter the market.
A smaller entrepreneur could not reasonably decide to compete with Google across search, advertising, cloud computing, artificial intelligence, mobile operating systems and consumer software.
But the entrepreneur does not need to compete with all of Google.
The opportunity may be hidden inside a narrow part of the market that Google does not understand, does not serve well or does not consider large enough to pursue.
A small company can specialize. It can move quickly. It can understand a particular industry, location or type of customer better than a global corporation.
That specialized understanding can become its moat.
You do not defeat a giant by becoming a smaller version of the giant. You succeed by doing something the giant cannot—or will not—do as well as you.
Learn to Surf the Waves of Change
Having a moat does not mean your company can stop changing.
Every moat eventually faces erosion.
Technology changes. Customer expectations change. Competitors improve. Regulations evolve. Distribution channels disappear. Products that once appeared indispensable become obsolete.
In today’s world, you cannot be afraid of change. It will happen whether you welcome it or resist it.
You must learn to surf the waves of change.
A surfer does not control the ocean. The waves may grow, accelerate or suddenly change direction. The surfer survives by maintaining balance, watching conditions and adjusting course.
Business works the same way.
Adapting does not mean abandoning your company’s purpose whenever something new appears. It means changing the route while continuing toward the larger destination.
Many of the leading companies from ten or twenty years ago have disappeared, declined or become irrelevant. The survivors were generally willing to pivot before circumstances forced them to do so.
The difficult part is knowing what to change and what to protect.
A company should be flexible about its products, processes and delivery methods—but protective of its purpose, customer relationships, intellectual property and core advantages.
Own More of the Recipe
Complete independence is rarely possible. Every company depends on customers, employees, vendors, lenders, utilities, governments and technology providers.
The objective is not to control everything. The objective is to understand your dependencies and prevent any single outside party from having the power to destroy your company.
You can reduce that vulnerability by:
Developing products and intellectual property you own
Building direct relationships with customers
Collecting your own customer data—with permission
Avoiding dependence on one major customer
Maintaining more than one supplier
Creating alternative distribution channels
Limiting unnecessary debt
Keeping enough cash to survive disruptions
Documenting your processes and institutional knowledge
Amazon may be an excellent sales channel, but it should not be your only connection to the market.
A major customer may be profitable, but it should not be able to destroy your company by canceling one contract.
An exclusive supplier may give you an advantage, but you should understand what happens if that relationship ends.
A loan may help you expand, but the repayment obligation remains even when the customers disappear.
Every dependency should have a backup plan.
The CEO Cookbook Recipe
Ingredients
One product or service that solves a real problem
Direct access to your customers
More than one source of revenue
Several reliable suppliers or alternatives
A manageable amount of debt
Intellectual property or specialized knowledge
A generous portion of adaptability
At least one competitive moat
Enough cash to survive an unexpected change
A clear understanding of everything you do not control
Preparation
First, identify every person or organization capable of seriously damaging your company.
Examine your lenders, suppliers, major customers, manufacturers, software providers, marketplaces and distribution channels.
Next, ask what would happen if each one disappeared tomorrow.
Then begin reducing the most dangerous dependencies. Add another supplier. Build a direct customer list. Create a second sales channel. Pay down expensive debt. Document your processes. Develop your own product. Protect your intellectual property.
Finally, keep adapting. Your moat cannot be something you built ten years ago and then ignored. It must be maintained, widened and occasionally rebuilt.
The Final Lesson
A durable business requires three things:
Control — Own as much of the product, customer relationship and delivery system as reasonably possible.
Uniqueness — Develop a moat that makes the company difficult to copy or replace.
Adaptability — Recognize when the world has changed and adjust before circumstances make the decision for you.
Ownership without control is an illusion.
A moat without adaptation will eventually disappear.
Adaptation without a unique advantage leaves you chasing every new trend.
Combine all three, and you have something much more valuable than a company that is merely successful today. You have a business capable of surviving tomorrow.
The world will change, competitors will come and platforms will rewrite their rules. Build a company that can change direction without surrendering control of its destination.
