By advantage, we will turn our attention to competitive advantage, and this is the third element that we will examine during the discussion of opportunity identification.
So building a competitive advantage really starts with thinking about customer validation and having the customer perspective to validate the planned problem and solution.
Is your advantage superior and sustainable?
Building a competitive advantage gives you a goal as you invest time and resources to build this business. And it helps you really think about how to be competitive. This requires consideration of two components:
- Your score
- Sustainability of this feature
- What is your advantage score?
1. According to the degree
What we're discussing here is, are there better features? And not a little better but much better features that you can bring to the market.
Are there things that are not necessarily more in number? If a competitor has five features it doesn't necessarily mean that you need these five features.
According to our discussion on value creation there may be one or two things that customers don't really appreciate:
- Remove these resources and reinvest them in doing some new things.
- Amplify some of the current things that really matter to customers.
But we want to be better and we want to be a lot better.
2. Lower price
We may be able to be cheaper we may be able to extract value in the marketplace by offering a product similar to what is out there.
Probably the exact same product in many ways but we have some secret sauce a new approach makes our offer cheaper and not just cheaper so competitors can lower prices.
Then we lower prices and then we lower prices and then we go out of business if they are bigger than us and we can't compete that way.
But what we mean by lower prices and significantly lower prices in a sustainable way is that there is something different about our operations.
So, in that case think of something like a home movie experience. What you've been doing in the DVD movie rental market a few years ago a lot of people would go to the video rental venue Blockbuster, pick up a movie, pay for the movie, leave, and go home.
Then they came back a day or two later and brought the movie back. Well, people haven't stayed with Blockbuster since they stopped working but what really happened to most of us is a company called Netflix.
Netflix may now be known as a streaming service you may know Netflix now as an Internet-based service but in its infancy it was a mail order and what that allowed us to do was go online and pick out the same films that we might have picked from the Blockbuster movies but that would come to us by mail.
Sure we might have to wait a few days for the films to arrive but they were cheaper and were always in stock more or less.
So the fact that we had to wait a couple of days, but for many of us we'd rather wait a few days when ordering by mail than going to the The store the movie may or may not have been there. We'll see that the wait is worth the time or money we saved.
So what we see with that, though, is that Blockbuster is finally starting to try to do some development with mail order and try to do some things online.
But first, they were a little behind in development at that point. Second, they still bear the costs of the direct face-to-face operations that they were still carrying out.
So make sure they can try to copy Netflix or copy Red Box and make a model vending machine. But this did not necessarily replace all the expenses they were already incurring.
So based on the multi-year lease agreements, they might already have been in trouble even if they wanted to close the stores.
So what we see in that is where there's an opportunity to achieve a degree of improvement through lower price and if it's through some operational benefit or supply chain benefit or manufacturing advantage that's where you can really add value.
3. Rare factor
You can also add real value in the market and have a large degree of advantage if you are scarce. That is, you can bring to market something that your competitors cannot or cannot reasonably do, the way you do.
What is the sustainability of your advantage?
What we're talking about here is:
- How hard is it for someone to imitate what you do?
- What is the probability of that?
- How easy it is for a competitor to come and notice?
- What you're doing or learn from you.
Watch your success in the marketplace and decide that they want to apply their resources, knowledge, or relationships, to try to replicate your success.
Or maybe it's the next beginning, the one that came after Netflix and saw their success trying to replicate what they were doing.
Well, in this context you want to think aboutwhen you enter the market are there things you can do to make your product difficult to copy? Now it might be intellectual property perhaps patents and things that you can develop.
Or it could be building that strong brand that resonates that really takes root in the market It may be the relationships that you can develop.
They may be exclusive agreements that you can sign with people who sell your product or supply parts of that product to you .There are a variety of different ways you can work to build some barriers of entry that make it difficult for those to come in later and compete against you.
What are the sources of competitive advantage?
We also want to think about sources of competitive advantage, there is degree and there is sustainability. Hence the implementation of that is influenced in some way by how this feature is derived in the first place? The first is specialization.
1. Specialization
What we see in specialization is an opportunity to not be like everyone else. So, I see a lot of students today have notions about subscription boxes.
What I mean by that if you're familiar with NatureBox if you're familiar with Dollar Shave Club. These are forms with which you can connect to the Internet as an individual.
You will pay a fixed fee monthly. Maybe $20, maybe $40 a month and you'll get automail usually monthly, with subscription boxes for the products you sign up for.
What it means for the people who offer this product is that it's a great return model if they can convince a customer to check once and enter their credit card number they know that every month until that customer cancels they'll get a new product they can expect.
They'll have new revenue that they're going to generate every month forever they can either build the original product. A kind of predictability of demand, they can either make agreements with their suppliers based on this request.
They can develop a number of distribution agreements to bring in products and we see this not only in food and shaving but we see it in cosmetics we see it in clothing we see it in educational products and children's crafts.
What excites me is a company called Cratejoy is one of the few companies that chose let's Build Tool and let's build the platform. What Cratejoy does is they start a subscription e-commerce business. They started a software company in the summer of 2013.
Individuals who want to be a company are allowed to sign up they want to be that subscription service provider to use their software and use their platform to build their site. To manage their inventory to take care of their payments and you have an integrated service for a monthly fee.
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2. Localization
Localization is another opportunity to be different competitively and to build that competitive advantage. We see this in some cases in international markets where there is a local producer that works well, the example here is Spotify Music.
This is the fixed dollar value that you pay per month. You can stream music, download music, and things like that for a flat fee.
Well, what we saw abroad in Taiwan is a competitor in KKBOX, which has distinguished itself from Spotify. They may have a lot of the popular music that Spotify owns but they distinguished this by trying to sign up to local music labels and entering into some exclusive agreements that provide this company with unique access, unique inventory, and a unique catalog of content and music for its local market.
To be able to anticipate to be able to deliver to be able to serve people back home in a way bigger and better than Spotify. So, in this context it's somewhat of a specialty but more than that it's a localization strategy.
3. Team
Now if you're really successful if you're a Google user if you're Microsoft you can really hire great talent and great CEOs but what I'm talking about here is as a startup because you're looking for your co-founders, and you're looking for your first or second employee, you're looking for great people.
Find people who excel in what they do. What you can expect is a higher probability of getting excellent products and an excellent company if you start with an excellent team.
So if you want to start an electric car company I'd like to start with the chief technology officer the chief technology officer, who has done great things before, who has built and expanded electric aircraft platform companies before.
This understands electricity, this understands aerodynamics. He understands how to build an efficient technical team unlike a CFO who knows the numbers who understands money and who understands the auto industry.
Unlike a master designer who knows design, I want someone who can make cars, I would like someone who was a production pioneer, I want someone who understands how to buy things.
Someone who understands the supply chain can operate on a global scale. And I want my company to be fun. I want my company to be in a place where people can come and enjoy what they do, enjoy their work, and enjoy the company culture that we can build.
Summary
We want to think of competitive advantage in two ways degree of sustainability. Can we do something much better, much cheaper, or much rarer than what is out there? Can we build something sustainable? Hard to copy? Can we find the source for the feature? Either independently or in combination.
Such as specialization, localization, building a great team or other factors that will enable us to achieve success in our project.
And enabling us to elevate ourselves so that we can be sustainably useful with a great degree of advantage when we present ourselves in the market.