By: John S. Morlu II, CPA
Most people think profit is the goal of a business. It isn’t. Profit is a result. A moat is the reason that result lasts.
The word moat comes from old castles. A castle without a moat could be attacked easily. A castle with a deep moat was hard to invade—even if it wasn’t perfect. In business, a moat works the same way. It protects a company from competitors who want to copy, undercut, or replace it.
What a Moat Really Means (Plain and Simple)
A business moat answers one question: “Why can’t someone else do this and take your customers?”
If the answer is:
- “We work harder”
- “We care more”
- “We are smarter”
…then there is no moat. Hard work can be copied. Talent can be hired. Effort does not protect a business.
A moat is something structural—something that makes it hard for others to compete, even if they want to.
Common Types of Moats (Easy to Understand)
1. Switching Costs
This means customers can’t easily leave without pain. Think about:
- Accounting systems
- Payroll platforms
- Tax or compliance software
Once years of data are inside a system, switching feels risky and expensive. Why it matters: Customers stay—even if someone offers a cheaper option.
2. Network Effects
The product gets better as more people use it. Examples:
- Ride-hailing apps
- Messaging apps
- Credit reporting systems
More users create more value. New competitors start with nothing. Why it matters: Big networks crush small ones.
3. Rules and Regulations
Some businesses are tied to laws, rules, or institutions. Examples:
- Tax systems
- Payroll compliance
- Government platforms
Replacing them takes legal approvals and political effort. Why it matters: Even good competitors move slowly.
4. Data Advantage
Some companies collect data no one else has. Examples:
- Credit histories
- Financial records
- Transaction data
More data leads to better results. Better results build trust. Trust attracts more users. Why it matters: Data advantages grow stronger over time.
5. Trust
Some businesses handle things where failure is dangerous. Examples:
- Compliance
- Audits
- Payments
- Financial reporting
People prefer trusted names because mistakes are costly. Why it matters: Trust blocks newcomers.
6. Size and Scale
Big companies can do things cheaper and faster. Examples:
- Logistics networks
- Cloud platforms
- Marketplaces
Their size lowers costs that smaller players can’t match. Why it matters: Competitors run out of money first.
Why Moats Matter More Than Profit
Profit answers: “Did you make money this year?” A moat answers: “Can you keep making money for many years?”
A business can be:
- Profitable today and gone tomorrow
- Unprofitable today but unstoppable tomorrow
Investors, buyers, and serious builders care more about durability than quick wins.
The Big Truth
- Profit is the result
- The moat is the reason
- Value comes from protection, not hustle
Anyone can make money once. Only businesses with moats can keep it.
That is why moats—not short-term profits—decide which companies survive, scale, and eventually pay out big.
Author: John S. Morlu II, CPA is the CEO and Chief Strategist of JS Morlu, leads a globally recognized public accounting and management consultancy firm. Under his visionary leadership, JS Morlu has become a pioneer in developing cutting-edge technologies across B2B, B2C, P2P, and B2G verticals. The firm’s groundbreaking innovations include AI-powered reconciliation software (ReckSoft.com), Uber for handymen (Fixaars.com) and advanced cloud accounting solutions (FinovatePro.com), setting new industry standards for efficiency, accuracy, and technological excellence.