The Importance of Business Moats in Investment Strategy

At Purpose Group, we are committed to buying, holding, and growing purpose-driven companies. A cornerstone of our investment strategy is identifying businesses with strong and durable competitive advantages, also known as moats. As Charlie Munger wisely said, “A great business is a bit like a castle with a moat around it. You want the moat to be as wide and as deep as possible.”

When we evaluate a company, we look for defendable strengths that help it fend off competition and grow over time. These moats can take many forms: a brand that has been a community staple for decades, powerful relationships with strategic partners, or patented technology. For example, our first acquisition, Gerald Printing & Liberty Imaging, has been a trusted provider of print, apparel, and signs since the 1970s. Their entrenched, durable relationships with customers in their local communities create a formidable moat. As long as they continue to deliver exceptional service, their competitive advantage will only strengthen.

Warren Buffett has emphasized the importance of moats, stating, “In business, I look for economic castles protected by unbreachable moats.” This philosophy guides our approach as we seek to expand our portfolio with additional businesses. A strong moat is a critical factor in our decision-making process, ensuring the companies we acquire will thrive for decades.

Examples of Strong Moats

• Coca-Cola: Their brand is so deeply ingrained in global culture that it would be nearly impossible to unseat them.

• Starbucks: Their loyal fan base and app-based loyalty program create a sticky network that keeps customers coming back.

• Apple: Their ecosystem locks users in, making it difficult to leave once you’ve invested your digital life into their platform.

• Amazon: Its dominant position in e-commerce is protected by its massive scale, efficient logistics network, and the strong network effects of its marketplace, making it difficult for competitors to match its prices, selection, and convenience.

Even small businesses can have powerful moats. A company that has served its community for decades in a stable industry often builds a loyal customer base and enduring relationships.

Evaluating a Moat

Determining the strength and durability of a moat requires careful analysis. We speak with existing customers and partners, survey the industry, and evaluate the company’s reputation and growth over time. A company’s culture also plays a significant role. When a team is aligned around a shared purpose and embodies its values, it can significantly expand the company’s moat.

Our Investment Strategy

At Purpose Group, we focus on businesses that have been around for decades, demonstrated enduring profitability, and have a culture we can build upon. We introduce our Purpose Playbook framework to help these companies grow and thrive. Because we hold our businesses for the long term, it’s critical that they have an entrenched moat they can defend.

Our goal is to use the cash generated from these businesses to fuel their growth and provide capital for future acquisitions. By focusing on companies with strong moats, we ensure they remain healthy and competitive for decades to come.

If you’re a business owner or investor interested in learning more about our approach, we’d love to connect. Together, we can build a portfolio of purpose-driven companies that stand the test of time.