Competitive Moat Review

---
name: Competitive Moat Review
description: Produces a moat review testing a business against the named power structures -- scale economies, network effects, switching costs, counter-positioning, cornered resource, process power -- when you need to identify which one it actually has before an exit multiple is underwritten on the answer.
---

# Competitive Moat Review

## When to use

Use this skill after commercial analysis has mapped the competitive landscape and before the exit multiple is set. Commercial analysis asks how attractive the industry is; this skill asks whether this company holds anything durable inside it. Run it wherever returns depend on margin holding or on exiting at or above entry -- and on every CIM that says "highly defensible".

## What it does

Produces a moat review: each candidate power tested against the evidence it requires, a verdict naming the one or two that survive and how long they last relative to the hold, and the terminal margin and exit multiple those conclusions support.

## Method

### Step 1 -- Apply the benefit-and-barrier test

A power needs both a quantified benefit -- price, cost or retention a competitor cannot match -- and a barrier that stops a well-funded competitor arbitraging it away. A benefit with no barrier is an advantage, and advantages are competed away inside a hold period. Set the counterfactual first: how long would a funded entrant need to reach parity? Under 18 months, there is no moat.

### Step 2 -- Test each candidate power on its own evidence

Work through the structures in Helmer's 7 Powers, taking each in turn rather than asserting the set.

**Scale economies:** does unit cost actually fall with volume? Plot gross margin against volume across three years, and measure the volume gap to the number two.

**Network effects:** does value to each user rise with the number of users? Evidence is retention or willingness to pay rising with density in a vertical. Data effects flatten early.

**Switching costs:** measure, do not assert -- implementation days, integrations, migration, retraining, exit fees -- cross-checked against what dissatisfied customers actually did.

**Counter-positioning:** a model the incumbent will not copy because copying damages its own economics. Name the incumbent, the collateral damage, and the years of non-response.

**Cornered resource:** exclusive access on attractive terms -- a licence, exclusive distribution, a patent with real claims. Most are dated: find the expiry and who holds renewal.

**Process power:** a capability competitors can see but cannot copy quickly. If it lives in a person rather than a system, it is key-man risk, not process power.

### Step 3 -- Rank the survivors, then date them

Most businesses at this size have one power, or none; the seller will claim all six, and a memo that repeats all six is not diligence. State the one that survives, what it is worth, and where the others failed Step 1. Then date it -- an expiry inside the hold is an exit problem, not an operating one. Ask separately whether it holds volume or holds price: a moat that keeps customers while conceding price protects revenue, not margin.

### Step 4 -- Translate into the model

The verdict sets the terminal margin and the exit multiple. Where no power survives, underwrite a flat exit at best and keep multiple expansion out of the base case: assuming exit above entry on an asserted moat is where returns are manufactured rather than earned. Where a power is dated, run the expiry as a scenario, not a footnote.

## Inputs

- Commercial analysis output, including the Five Forces conclusion
- Gross margin, volume and cost structure by year (three years minimum)
- Win/loss records and competitive tender outcomes
- Exclusive supply, licensing, distribution and patent contracts
- The exit multiple and terminal margin in the returns model

## Output format

A moat review with four sections:
1. The benefit-and-barrier test and the parity counterfactual
2. Each candidate power, its evidence and verdict (prose, never a table)
3. The power that survives, what it is worth, and how long it lasts
4. Implications for terminal margin and the exit multiple

Total length: 900-1,200 words. One power evidenced beats six asserted.

## Example

**Verdict (excerpt -- Pellworth Labs, fictional):**
Specialist testing, revenue $80.0m and EBITDA $20.0m at a 25.0% margin, offered at 11.0x for an EV of $220.0m. The CIM claims scale, switching costs and proprietary methods. Scale fails: gross margin was 51.0% at $52.0m of revenue three years ago and is 51.4% today -- 40bps across a 54% volume increase is mix. Switching costs hold: re-validating methods costs a hospital customer roughly $140k and five to seven months, and of nine accounts that tendered in three years, eight renewed -- at an average 3.2% price concession, which is the price of the moat. The reagent exclusivity is a cornered resource with a date on it: 3.5 years, inside the hold, renewable at the supplier's option, and non-renewal costs about 180bps of gross margin -- $1.44m of EBITDA, $15.8m of EV at 11.0x. One real power, one dated: underwrite a flat exit.