Over the last few years, there has been an ongoing debate over whether or not today’s companies can still rely on the proven concept of the sustainable competitive advantage. For entrepreneurs launching new startups, this question is both timely and relevant, and the answer directly impacts how any new business should move forward in the modern economy.
As a new startup owner, it’s critically important that you understand the nature of competitive advantages, as well as how they are created and sustained over time. It’s also helpful to look at how the very concept continues to evolve and change as the economy becomes more dynamic and fluid with each passing year.
What is competitive advantage?
At its core, the concept of competitive advantage is fairly simple: it involves those areas in which a given company maintains superiority over its competitors, and generally results in greater profitability for that company’s owners or shareholders. These advantages can be created in a variety of ways, and involve either direct comparative advantages or differential advantages.
Comparative advantages – which are also knows as cost advantages – occur when your business is able to produce its products or services at a cheaper cost than your rivals. That either permits you to undercut your competitors’ prices or realize a greater profit margin at an identical price.
A differential advantage is realized when your products are viewed as being substantially different than your competitors in terms of quality. That makes those products more attractive to customers, and results in higher sales volume, greater customer loyalty, or the ability to charge a higher price for your superior goods.
Every successful business venture has some form of advantage over its competitors. The key is to identify those areas of core competency that make your business stand out from the crowd and figure out how to leverage them into the most sustainable advantage possible.
Recognizing an Advantage
The most perplexing issue facing most startups involves determining the company’s place in the marketplace. Every entrepreneur will have done the research necessary to identify his potential target market, and most spend quite a bit of time identifying major competitors. A surprisingly large number of startup owners, however, spend precious little time considering what actually makes their product or service superior to those of their rivals.
Far too many simply assume that they can offer their product or service at a slightly lower price and immediately attract market share. Still others mistakenly believe that a glitzy marketing plan can serve as an adequate substitute for a well-conceived business strategy. Neither belief is true. The fact is that your startup is going to struggle mightily if it lacks a comparative or differential advantage over its rivals.
With that in mind, you need to identify the key factors that contribute to your startup’s advantage: the target market, that market’s specific need, and how you’ll meet that need in a way that is superior to all of your competitors. Until you can identify those things, your product or service is just one of many in a market saturated with mediocre ideas and lookalike products and services.
So start by identifying your market. Who are your customers? How do they work, play, and live? What use do they have for the products and services your startup is offering? What value will those products and services add to those customers’ lives?
And, most important of all, how can you meet their needs better than anyone else?
You know your startup better than anyone else does, so those questions should be relatively easy to answer. After all, your startup was probably conceived as an idea that offered a solution to an identified customer need. That fact means that most of your groundwork for the creation of a competitive advantage was actually done long before you even thought about launching your company.
The P Conundrum
You know your target market. You’ve identified their need. You know you have the product or service they need. The only thing left is to determine what factors actually give you that edge you need over everyone else in your industry. It’s time to examine how the P Factor comes into play.
There are four things we’re concerned with here: the product, the price, the place of access, and the promotion of it all. Any or all of these factors can contribute to creating that edge you need to achieve an advantage over your main rivals.
Is your product superior to the competition? If so, is that difference in quality sustainable over time, or is it a gap that can be easily bridged by your rivals? Is the level of superiority sufficient to provide potential customers with enough additional value to cause them to choose your offerings over those of your competitors?
On price, the issue is not necessarily how low you’ve gone. In fact, many companies differentiate themselves with higher prices and more luxurious experiences. The key is to ask yourself whether or not the customer will find that the value of your product or service matches or exceeds the prices you’ve set. If you can answer that question in the affirmative, then consider your competitors’ offerings and whether their prices are equally appropriate for the target market.
In today’s high tech world where startups can take on a variety of form, many people completely forget about the importance of place. They shouldn’t. The place factor encompasses not only physical location, but overall access to your goods and services. Regardless of your chosen business type, customers still prefer easy access to the products they want and need.
Promotion tends to be a popular topic for most entrepreneurs. That shouldn’t come as a surprise given how enthusiastic most startup owners are about their own projects. Of course they want to promote their products and services! The question to ask here is simple: does your offering lend itself to easy promotion? If it does, that too can form part of your competitive advantage.
The Demise of Sustainable Advantage?
Even after you’ve identified your initial advantage over the competition, your work is far from done. Advantages are of little consequence if they prove as unstable as the weather. The problem is that most of the areas we’ve identified have little permanence to them. If you doubt that, consider this:
- Companies have become very good at matching their rivals’ product capabilities. New product quality advantages are usually short-lived.
- Services remain among the most easily replicated offerings in the marketplace today.
- Even the best price advantage can be overcome in a relatively short period of time.
- There’s always someone out there willing and able to duplicate your solutions and seek your customers’ attention and business.
If that sounds as though competitive advantages are temporary at best, there’s some truth in that. To be sure, there are a whole host of businesses that have relatively permanent and built-in advantages that enable producers to maintain the same practices for extended periods of time. Take vegetables, for example: it grows in bulk on farms. It’s always grown on farms, and is likely to continue to grow on farms for the foreseeable future. While there have been some modest attempts to adopt different business practices, they have scarcely dented the farming industry.
For most other businesses, however, everything is up for grabs on a consistent basis. New products, new services, and new systems are continually exerting pressure on entire industries to adapt or perish. In that sort of world – with that level of continuous innovation – is there any real sustainability for a competitive advantage?
Finding the Deeper Advantage
Despite the debate about sustainability, there are some things about human nature that never seem to change. We all want to develop relationships with others. As a business owner, your understanding of that aspect of human nature is the one indispensible ingredient needed for the development of a sustained advantage over your competitors.
Think about the stores in which you shop and the products you buy. Chances are there is at least one store that you’ve relied upon for some certain set of goods or services for an extended period of time. It is even more likely that there are certain products that you’ve faithfully purchased year after year for as long as you can remember.
Personally, I have one particular grocery store that I have frequented for decades. They don’t have everything I need, and they certainly don’t provide their products at the cheapest prices available in my area. What they do have is something that has created a sense of familiarity and loyalty between us that keeps me returning week after week:
They know me. They know my needs. And I know that I can trust them to do everything they can to meet those needs every time I show up in their aisles.
That relationship between company and customer is something that cannot be overlooked. Far too many startups assume that all they have to do is provide the best possible product at the fairest possible price and the customers will flock to their offerings, eager to hand over bushels of money. The reality is that it takes more than the best product and price to develop a sustainable advantage. It takes a relationship.
Your customers need to trust you. They need to know that your commitment to their needs surpasses your desire for success, profit, and personal glory. They need to feel as though there is a value involved in doing business with you that goes beyond the quality of your product or service offerings or the few pennies or dollars they save by shopping at your store or website.
If you can learn to develop a relationship style that focuses on lasting unions with your customers, you can create the type of brand loyalty that outlasts your competitors’ efforts to duplicate your product quality, match your price, or out-dazzle your marketing efforts. When you focus on your customers and your relationship with them, you create the ultimate competitive advantage: they’ll trust you and rely on you to meet their needs.
Nothing lasts forever
So, now you’ve identified your essential area of superiority and know exactly what makes your startup superior to every one of your rivals. You know your market. You know their needs and what problems they need to see solved. Most important, you know how you can solve those problems.
And now you’ve committed to seeking lasting relationships with your customers. What else could you possibly need to do to ensure that your advantage over your competitors is strong and enduring?
To start with, you can clear your mind of any thought or belief that any competitive advantage is sustainable over the long haul. Yes, you read that correctly; no matter how firm and eternal your advantage may appear, or how powerful your relationships with your customers may seem, the one guarantee in business is that it can all change in the blink of an eye.
If you’re thinking at this point that this whole competitive advantage pursuit is just a waste of time since it cannot be sustained no matter how hard you try, take a moment and take a deep breath. You can enjoy a sustainable advantage over your rivals. You just cannot expect to do it without adaptation.
Here’s a little-understood secret that can help to make your life immeasurable easier: in today’s economy, truly sustainable competitive advantages are not walls that you erect with the expectation that they’ll last forever. Rather, they are like a boat on an ever-changing and ever-evolving river. As a result, maintaining your advantage over competitors requires that you be nimble, flexible, and vigilant as you navigate those new waters as they appear before you.
If you can develop the flexibility necessary to continually adapt your strategies to meet new customer needs as they appear, while still focusing on the critical relationships between those consumers and your products and services, you can create and maintain the competitive advantage you need to succeed and prosper.
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