Sustainable Competitive Advantange
Recently, I was attending a session at UC Berkeley’s Haas School of Business, where I am a class mentor, and we were talking about new venture opportunities. Specially, after you have gone through the screening process of identifying your next venture, you have to identify your sustainable competitive advantage and how that will map to your grand strategy.
Unfortunately, what I find is that many (inexperienced) entrepreneurs’ don’t place enough emphasis on this – partially because they believe, given what they are doing, it may not be that important and, in many cases, don’t really comprehend what a competitive advantage really is and what it can do for a company.
Let’s start with what sustainable competitive advantage is not. It’s not a short-term, “I can do this faster and cheaper than existing competitors!” To illustrate, you cannot establish a sustainable competitive advantage based upon unit economics and other individual components of a business. That’s like saying, “I’m going to build a search engine as good as Google’s but have fewer employees therefore my cost structure will be less, and, in turn, I can charge less for adwords and more customers will come to me!” Really??
In it’s simplest form, there are three generic strategies one can take: playing position, playing edge, and playing resources. To extrapolate: when you play position, you focus on your position within the industry and the leverage that you have as a result; when you play edge, it’s all about innovation and staying ahead of competition (e.g. Apple); finally, playing resources is leveraging the resources you have (people, money, other assets) and applying all of their collective efforts on the problem you are trying to solve.
At the core of all of this, building a sustainable competitive advantage requires you to develop a holistic ecosystem that potentially encompasses all three generic strategies above. Factoring this, you have to also include tangibles such as real intellectual property, a dynamic product line (i.e. edge), cost management (beyond unit-level metric), strong team with strong relationships, hold on the market or customer segment, focus and differentiation (ala Michael Porter), and most importantly – VALUE. Bring all these components together and that’s how you develop the ECOSYSTEM that will develop and support your grand strategy.
Finally, remember that strategy, and the concept of developing and executing it, is a living, breathing program. It will require you to constantly validate your assumptions and make the necessary pivots and, in some cases, a complete evolution of your business model, to continue down a successful path.
To your continued success…
Posted on September 26, 2011, in Business Lessons and tagged 5 Forces, adwords, competitive advantage, Competitive Strategy, decision making, Entrepreneur, Google, Management, michael porter, Potential Entrants, Strategy, Vikas Khanna. Bookmark the permalink. 5 Comments.