Let me tell you a story.
there is a city with one and only one pancake shop.
People in the whole city have never eaten pancakes, and the taste of this store is not bad, so people flock to it, and all the people in the city have to eat it. In a blink of an eye, Wan Li came to this store, and a year later, this pancake store made a net profit of 1W, while Lao Wang, the owner of this store, spent only 2W from buying the store to machinery, equipment, tables and chairs.
according to this calculation, the annual rate of return is 5%. Such a high rate of return has successfully attracted the attention of Zhang Xiaosi in the south of the city. Because the pancake technology is not high, Zhang Xiaosi's pancake shop also opened soon. At this time, there are two pancake shops in a city. People who went to eat pancakes not far from Wan Li will choose one close to them.
The flow of people in Lao Wang's pancake shop suddenly decreased. The profit in the second year was only 5w, and the yield naturally dropped to 25%. Although the rate of return has dropped by more than half, it is still considerable after all.
In the next few years, people in all parts of the city couldn't sit still. Opening a pancake shop made more money than working. More people saw the oil and water, and they all rose up and started selling pancakes. In just a few years, no one flocked to Lao Wang's shop, and the people who came to buy pancakes were sparse, which was no longer a rare product in everyone's eyes. Therefore, the income was bleak year by year, and finally they could only survive.
at the same time, because there are more and more shops selling pancakes in the whole city, people can buy them within two blocks, and the fierce competition in the whole industry eventually leads to low income of each shop.
Lao Wang's pancake shop, which made huge profits, has since withdrawn from the market.
In the real society, this is the case in business. Everyone tends to seek advantages and avoid disadvantages. If a company in an industry can really make huge profits, let alone huge profits, as long as it is profitable, it will inevitably attract a large number of competitors to share a piece of the action.
at that time, no matter how brilliant the company was at that time, it will have to leave in the end. This is the law of survival, and this is the reality.
well, this story is finally over.
but we can totally absorb some useful things from it. When a company lacks some competitive advantages to prevent other companies from competing with it, then the company can only earn the average profit in the market in the end, or quit in a daze. And this can block the competitive advantage of other companies, which is the moat.
in short, the advantage that the company can't be imitated and copied in the short term is the moat, which can help enterprises resist foreign competition.
Let's think about it. If Lao Wang did not sit idly by, but adopted some strategies, would the outcome be different?
For example, the model of copying storefronts was opened all over the city. Because of the expansion of the scale, the cost of a single pancake was reduced to the lowest, and then the advertisement of the brand "Lao Wang Pancake" was spread all over the streets and lanes, and the patented technology of high-end pancakes which can alleviate diseases such as diabetes, hypertension and cerebral thrombosis was developed.
At the same time, actively enlist the leadership of this city to exclusively authorize Lao Wang's pancake shop and prevent foreign competitors from doing any pancake-related business. If all these are done, will it have a place in the local area, which is undoubtedly an insurmountable gap for new competitors, and this gap is a broad moat.
There must be several local strongman restaurants in our city. Why do you think they can resist foreign competition? Companies without moats, like the original Lao Wang pancake shop, will gradually be defeated by new competitors.
a moat can resist other companies in the same industry and its advantages of fair competition. A company with a moat has the advantage of unfair competition.