Permanent Equity Weekly #52

Moats are not static. Companies fail heavily in years one to five, then plateau — a business in its 25th year has roughly the same odds of dying as one in its 5th. Competitive moats get discussed as if most businesses have one; the data doesn’t bear it out.

Notes

• “Companies have a high failure rate in their first three to five years. Then the challenges plateau. Averaged across industries, a business in its 25th year has roughly the same probability of dying as it did in its 10th year:” Morgan Housel
• Competitive Moats are routinely discussed in a static sense, as if they exist in some form or fashion for most businesses. But the facts simply don’t bear this out. Indeed, the facts show that every business, year after a year, decade after decade (Lehman), has a non-zero percentage chance of extinction. And the longer your organization is in business, the faster you have to run to remain in place because the competition only intensifies as you near the top of the industry, especially when 10% better means 100% of the potential profits. The incentive for improvement is ever-present. As Jeff Bezos would say, it’s always Day 1.