Warren Buffett often uses the word “moat” when describing high-performing companies. The concept relates back to the era of medieval warfare when armies would build ditches around the fortifications to make them easier to defend. 

The analogy with businesses is clear. Some companies, like restaurants, have shallow moats. Anyone can compete with them. Others have much bigger moats. For instance, it is hard to imagine any company seriously challenging Apple for its smartphone crown. 

Where do moats come from, though? And more importantly, how do you create one for your business? 

Some moats are the product of network effects. Google and Facebook, for instance, are both likely to be with us for a long time because they have dominion over the largest number of user connections. But many other moats are the result of technology. Thus, you don’t necessarily have to look for network monopolies to start a successful business. Having some technical know-how your rivals don’t is usually enough. 

What Is Intellectual Property? 

Intellectual property includes things like copyrights, patents, and trademarks. For the purposes of this discussion, patents are what interest us the most – specific plans for certain kinds of products or designs that other businesses cannot use. 

Intellectual property, therefore, is the right to use whatever you invent without somebody else enjoying the spoils. Ultimately, the idea is to encourage innovation and keep society moving forwards. 

According to GHB Intellect, however, companies can’t just assume that writing and submitting a patent is sufficient to guarantee market success. They need to defend it too. 

Why Is Intellectual Property So Important? 

Intellectual property is becoming increasingly important for firms wanting to start-up businesses and deliver new products to market. In 2017, the US patent office approved more than 440,000 patents from private companies across the country. But many of those new product ideas never made it to the stores. Instead, companies submitted them in the hope of gaming the system – charging royalties to anyone who does decide to implement them. 

As a firm looking to create a moat, therefore, having the right IP is essential. You don’t want to find yourself in a situation where you’ve built a great product, only to discover that you have to pay half the money you collect to a rival. 

Intellectual property is also important because it prevents other brands from copying your products. Ideally, you’d like to differentiate yourself from other market participants. And creating something unique using technology only available to your enterprise is a way of doing that. But if people can just reverse engineer your solutions, all your efforts have gone to waste. 

Keeping know-how within your business is the best way to build a “moat” around it. The more you can defend your intellectual property, the bigger the jump you can get on your rivals. When you have something that is genuinely better than other firms and they can’t copy it, you have a monopoly. And that means that you can charge higher prices and generate more profits. As a business owner, you should be rewarded for your efforts.