by Vince DelaRosa, May 30, 2023
In the world of business and investing, the concept of an "economic moat" has gained significant prominence. I believe that American Indian tribes can offer the most dominating moat proposition in the country. Let's take a closer look.
The legendary investor Warren Buffett coined the idea of an economic moat. This refers to a company's ability to maintain a competitive advantage over its rivals, safeguarding its long-term profitability and market share. Drawing inspiration from medieval castles and their protective moats, this analogy highlights the importance of fortifying businesses against external threats.
INDUSTRY OBSERVATION:
"It’s difficult to understand how an archaic, medieval strategy - essentially a ditch filled with water and perhaps the occasional alligator - could have been resurrected as a metaphor identifying a company’s sustainable advantage." - Franklin Tsung, Brimstone LLC | Jan 06, 2022
Understanding Economic Moats: An economic moat signifies the unique attributes that sets a company apart from its competitors. It represents the barriers that prevent rivals from easily replicating their success. These advantages can manifest in various forms, and be amplified by a tribe, they include:
Size Advantage: Large companies often enjoy economies of scale, enabling them to produce goods or services more efficiently and at lower costs.
Intangible Assets: Intellectual property rights, patents, trademarks, tribes have built in markets, and brand recognition provide intangible advantages that competitors find challenging to replicate.
Cost Advantages: Companies with lower operating costs or exclusive access to resources can offer products or services at more competitive prices.
High Switching Costs: When customers face significant costs or difficulties in switching to alternative products or services, a company benefits from increased customer loyalty and retention. Worth noting, tribes have import / export advantages. I worked on this report, take a look for more information.
Tribal Economic Moats: A tribe can offer distinct advantages, access & tax advantages, and scalability advantages. This includes investments and businesses that are more durable against economic downturns. This is the hedge and leverage that a tribal moat offers.
Warren Buffett famously considers the economic moat as his favorite investing strategy, emphasizing the importance of long-term sustainability and competitive positioning when selecting investments. Tribes are the ultimate moat building archetype.
IMPORTANT OBSERVATION: 5th Largest GDP
Worth noting, American Indian tribal and Latino market conditions are uniquely fitted to offer the most advanced economic and investment moats ever erected. Combined, their annual economic GDP output eclipses $4.5 trillion!
Ironically, these particular market conditions are well beyond the access or conditions that Warren Buffett had as he ascended in his career. Imagine if harnessed correctly, we could create 50 new Warren Buffetts.
In fact, these markets offer some of the most robust economic and investment conditions in the world. Think about moats in this context, where market conditions rival many countries' overall GDP and is a major portion of the U.S. economic output.
The economic outputs and financial strength of these communities and market regions have the 5th largest GDP in the world, ahead of Russia, Canada, Italy, and Brazil.
Tribal Economic and Investing Moats: Tribal economic moats offer a distinctive avenue for businesses seeking sustainable advantages. Tribes possessing sovereignty status, have the ability to create their own tax and currency regulations. This establishes and immediate unique business environment.
This allows tribal businesses to benefit from lower taxes or exemptions, resulting in cost savings and stronger financial positions. JVs, LPs, private investors, venture capital, and private equity can share in these advantages and build stronger cap tables!
Furthermore, tribal enterprises can leverage their connections to the local community, culture, and natural resources, creating a distinct brand identity and competitive edge. The deep-rooted relationships and understanding of the local market provide tribal businesses with an intimate understanding of customer needs and market preferences. This enhances their ability to deliver tailored solutions and build significant localized business moats.
Investor Advantages: investors also recognize the potential of tribal economic moats. Tribes have partnered with outside business interest for over 50 years. By partnering with or investing in tribal enterprises, they gain access to a unique market niche and enjoy the benefits of a well-established business ecosystem.
In fact, any number of investing methodologies can benefit from these relationships. REITs, IPOs, ETFs, equities, and basic investor holdings, just to name a few, can all be enhanced within the protective confines of a tribal business firewall, the moat. Here is a direct example, M&A deals, see this article on M&A deals.
For tribal enterprises, the combination of sovereignty status, cultural connections, and unique business environments offers distinct advantages that strengthen their economic and investing moats.
Final Thoughts - Let's Build Monopolies
Peter Thiel famously said: "Competition is for losers."
Combining moats with blue ocean strategies offers a unique opportunity to build monopolies with a tribe. Peter's point is, outflank and marginalize competition, go where they aren't, move fast, and do better business. He is correct.
The awareness raised here can hopefully allow smart money investors and business builders to consider these rare opportunities. Anytime you have the ability to explore untapped markets, grow holdings, or outflank your competition; you should do it!
What do you think? Are you familiar with these concepts? We would like to hear from you, leave a comment or suggestion below. If you want to learn more, feel free to reach out to us here.
Vince DelaRosa is the founder of Native Advisors.
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