Competitive Moat Review

When to use

Use this skill after commercial analysis has mapped the competitive landscape and before the exit multiple is set. Commercial analysis asks how attractive the industry is; this skill asks whether this company holds anything durable inside it. Run it wherever returns depend on margin holding or on exiting at or above entry -- and on every CIM that says "highly defensible".

What it does

Produces a moat review: each candidate power tested against the evidence it requires, a verdict naming the one or two that survive and how long they last relative to the hold, and the terminal margin and exit multiple those conclusions support.

Method

Step 1 -- Apply the benefit-and-barrier test

A power needs both a quantified benefit -- price, cost or retention a competitor cannot match -- and a barrier that stops a well-funded competitor arbitraging it away. A benefit with no barrier is an advantage, and advantages are competed away inside a hold period. Set the counterfactual first: how long would a funded entrant need to reach parity? Under 18 months, there is no moat.

Step 2 -- Test each candidate power on its own evidence

Work through the structures in Helmer's 7 Powers, taking each in turn rather than asserting the set.

Scale economies: does unit cost actually fall with volume? Plot gross margin against volume across three years, and measure the volume gap to the number two.

Network effects: does value to each user rise with the number of users? Evidence is retention or willingness to pay rising with density in a vertical. Data effects flatten early.

Switching costs: measure, do not assert -- implementation days, integrations, migration, retraining, exit fees -- cross-checked against what dissatisfied customers actually did.

Counter-positioning: a model the incumbent will not copy because copying damages its own economics. Name the incumbent, the collateral damage, and the years of non-response.

Cornered resource: exclusive access on attractive terms -- a licence, exclusive distribution, a patent with real claims. Most are dated: find the expiry and who holds renewal.

Process power: a capability competitors can see but cannot copy quickly. If it lives in a person rather than a system, it is key-man risk, not process power.

Step 3 -- Rank the survivors, then date them

Most businesses at this size have one power, or none; the seller will claim all six, and a memo that repeats all six is not diligence. State the one that survives, what it is worth, and where the others failed Step 1. Then date it -- an expiry inside the hold is an exit problem, not an operating one. Ask separately whether it holds volume or holds price: a moat that keeps customers while conceding price protects revenue, not margin.

Step 4 -- Translate into the model

The verdict sets the terminal margin and the exit multiple. Where no power survives, underwrite a flat exit at best and keep multiple expansion out of the base case: assuming exit above entry on an asserted moat is where returns are manufactured rather than earned. Where a power is dated, run the expiry as a scenario, not a footnote.

Inputs

• Commercial analysis output, including the Five Forces conclusion
• Gross margin, volume and cost structure by year (three years minimum)
• Win/loss records and competitive tender outcomes
• Exclusive supply, licensing, distribution and patent contracts
• The exit multiple and terminal margin in the returns model

Output format

A moat review with four sections:

1. The benefit-and-barrier test and the parity counterfactual
2. Each candidate power, its evidence and verdict (prose, never a table)
3. The power that survives, what it is worth, and how long it lasts
4. Implications for terminal margin and the exit multiple

Total length: 900-1,200 words. One power evidenced beats six asserted.

Example

Verdict (excerpt -- Pellworth Labs, fictional): Specialist testing, revenue $80.0m and EBITDA $20.0m at a 25.0% margin, offered at 11.0x for an EV of $220.0m. The CIM claims scale, switching costs and proprietary methods. Scale fails: gross margin was 51.0% at $52.0m of revenue three years ago and is 51.4% today -- 40bps across a 54% volume increase is mix. Switching costs hold: re-validating methods costs a hospital customer roughly $140k and five to seven months, and of nine accounts that tendered in three years, eight renewed -- at an average 3.2% price concession, which is the price of the moat. The reagent exclusivity is a cornered resource with a date on it: 3.5 years, inside the hold, renewable at the supplier's option, and non-renewal costs about 180bps of gross margin -- $1.44m of EBITDA, $15.8m of EV at 11.0x. One real power, one dated: underwrite a flat exit.