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Value Driver: Barriers To Competitive Entry
Circumstances that give a business an advantage over its competitors, strengthen its strategic position, or can be leveraged for future gain boosts business value. Why? Because it increases the probability of the continued profitability of the business and decreases perceived risk by prospective buyers.
As with all value drivers, it's about risk. Buyers will pay a premium price for a business that has barriers to competitive entry.
One way to describe this Barrier Value Driver is to use Warren Buffett's term, "Business Moat." Buffet compares a castle's moat to the protection that a business needs to ward off encroaching competitors. To Buffett, the castle is the business and the moat is the barrier that protects its competitive edge. The wider the moat, the longer a company can protect its profits.
Understanding a company's competitive position is an important process in determining business value. Therefore, a business owner who is considering a sale should understand what can be characterized as moat.
Widen Your Business Moat. The following are barriers that keep competitors at bay and increase your company's value:
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Texas Star Winery
Since 2002, the sellers, Earl and Judy Love, have been producing award-winning wines and generating revenues primarily from commercial accounts, online sales, and individuals purchasing directly from the winery during tours and special events. Ready to retire, the Loves sold the business to Jim Chisolm. Chisolm knew exactly what he was looking for. Texas Star Winery was the only business he looked at. He plans to add hand-crafted rum to the menu and establish relations with retailers and distributors.
Robert Bowman listed and sold the business.
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