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…

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5 Comments

  1. Hi, I liked this writing in this web site, you are giving good information with great things! This blog is very helpful!

    Reply

  2. So outside of a technology firm, how can you create a sustainable competitive advantage? Say for an accounting firm? Or heck, just a pizza place? If you think Papa Johns (better ingredients better pizza) that’s position, isn’t it?

    Reply

    1. Lee,

      Thank you for your comment. You bring up a very interesting point – how does a traditional business develop and sustain a competitive advantage. Not an easy task to say the least. I think, in its most simplest forms, traditional businesses (such as Papa John’s and accounting firms) exist in “Red Oceans” and, as a result, are forced to compete using traditional parameters such as price, promotion, etc. In short, certain “call to actions” that drive short term results.

      To that end, I think creating a sustainable advantage in a traditional business requires many different things operating cohesively together as I believe a single “silver bullet” doesn’t exist. For example, leveraging Porter’s 5 forces could provide for a competitive advantage and, as you keep reacting / innovating, that’s where the “sustaining” portion comes in. Couple that innovation – which always isn’t easy to develop – but can if you think about the business and problem you are trying to solve from a different angle.

      Definitely not an easy question to answer and in fact, I don’t think there is a single “right” answer and I’m sure, based upon your vast experience, you have come to realize that you try different things until you get the outcome you want.

      Reply

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