Why community is a business moat
Why do so many growth business CEOs and the smartest leaders in business believe that community is a business ‘moat’?
In this article I’ll explain what business ‘moats’ are, and why leading businesses are building communities and investing in community strategies to transform traditional business models and drive growth.
What is a business ‘moat’?
’Moats’, ‘business moats’ or ‘economic moats’ are differentiating factors in a business that gives it advantages over its closest competition.
All companies want to maintain long-term growth and sustainable competitive advantage. If a business is said to have an ‘economic moat’, or ‘moat'‘ for short, then it has a defensible and differentiating factor that enables the company to hold a competitive edge.
Similat to a moat that fortifies a castle, business moats are intentional, highly visible and serve to protect, defend and deter external attacks.
Like a castle moat, its presence is designed to make any new entrant to market think twice about storming the castle and taking on that highly defensible business. And like castle moats, some business moats are bigger and wider than others.
Some moats also protect highly desirable assets, where the value of any market share as a new competitor is simply irresistible.
Warren Buffet is widely recognised for using the term regularly to express why business moats are important to investors. “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital,” Buffett has said.
What are the different types of business moat? And where does community sit in relation to them?
Here are the 4 different business moats, and thoughts about how community can support each moat:
Network effect: A network effect happens when a service improves or grows as its customer base grows. Through networked growth, the business builds an economic moat. When the sheer size of people buying or owning a brand, wearing a brand or talking about a brand becomes hard to avoid , then they become market leaders. And everyone feels that the brand must have something that they’re missing out on.
B2B examples of the network effect include technology businesses Slack, Hubspot and Salesforce - all have exceptional community strategies and an investment in people and programs to build, sustain and grow their communities. Salesforce acquired Slack in 2021 and had a market cap of $263.52 billion in 2024. HubSpot is also a strong performer, with a market cap of £37.89 billion in 2024.
A B2C example of this is the navigation app Waze. The more users on the app, the better the service. Users can submit travel times, route details, traffic information, road hazards and more to constantly improve and iterate the service via their communities. Again, Waze is another community centric business, launched in 2009 with a product community/forum. They have evolved this community strategy over time.
Intangible assets: Proprietary technologies, patents, brand identity and government licenses are examples of intangible assets.
Big, global consumer brands like Nike, Apple, Adidas as well as B2B brands such as Adobe, AWS, Maersk or SAP have strong brand recognition and brand equity. These intangible assets mean that businesses can charge a premium for their products, boosting their profits.
Anyone who has heard me speak knows that I equate successful community to successful brand strategy. Building communities and brand building requires long term effort, focus and management. But like brand, community amplifies the potential to be more profitable and is an intangible asset.
Smart consumer and B2B brands look at innovative ways communities can support customer awareness and lifecycle marketing. They also ensure that they are highly attuned to evolving customer, market and competitor insights by developing communities and understanding their community ecosystems.
Their communities provide audience intelligence on steroids. Their communities create a flywheel of customer insight, content and data that they can use to funnel back into their business and continue to build and evolve their brands.
Cost advantage / switching costs: Companies that can keep their prices low can maintain market share and discourage competition. Supermarkets such as Walmart, Aldi or Lidl are obvious examples, but there are also advantages in B2B or B2C where customers are less keen to change companies or providers if switching incurs costs, time delays, or extra effort.
Martech is a B2B example. Retail banks, such as HSBC, Santander, Credit Agricole or Citi is a B2C example. One of the reasons why so few people switch bank providers, or switch from consumer technology brands such as Apple, is that customers are often caught in their ecosystem and are put off switching by the effort or cost to do so.
Community can support customer retention and provide additional value, customer ‘lock ins’ and additional reasons to not switch.
In practice, this could be ‘Loss aversion’ and losing access to a supportive community of practice in B2B if you don’t renew that annual software licence. Or having to find an alternative community of likeminded people that are convened by other consumer brands, e.g Adidas and their local running communities such as Adidas Runner London Community. These are examples of where community supports this particular moat by providing a service that customers simply don’t want to lose.
Efficient scale / regulatory moats: Companies that have a monopoly or operate in markets or industries where regulation keeps competitors out, or there are few rivals benefit from the efficient scale moat. Examples include large utility providers or national rail networks.
Community tends to be less aligned to this moat. However, regulated industries frequently do have communities and networks, such as workgroups, stakeholder groups, and other community engagement programs.
In summary
Moats are important to a company's bottom line. They are hard to spot until they gain traction, but they are strong signals to potential investors seeking to invest in growth companies.
The wider and more sustainable the moat, the greater the benefits for the company and its shareholders.
It is no coincidence that the most successful growth businesses see community as a force multiplier for their business moats.
Further reading
I’ve created a community glossary and I also explain key concepts in community strategy, community building and community management.
Here are some connected articles that you may find helpful:
What is a Community Qualified Lead (CQL)? And how does it differ from a MQL or PQL?
What is Community Everywhere / what are Community Ecosystems?
What is Community Led Growth - is it the same as Community Based Marketing (CBM)?
What is Community Market Fit?
What is Minimal Viable Community (MVC)?
What are rituals in community building and why are they so important?
What are the 5 Ps and 1 C of community?
What is Broken Windows Theory and does it apply to Community Management?
What is Community Manager Appreciation Day (CMAD)?
Book a Free Consultation
Want help or support with your community strategy or community building to support your business moats? I’m ready and waiting to hear from you. Book an introductory call to speak to me about your challenges and questions you might have.
Photo by Tyler Lastovich on Unsplash
