I’m a big fan of Jason Cohen’s blog A Smart Bear, but I gave him a hard time after his last post “Real Unfair Advantages” (read that first). I did not think it was concrete enough for the young entrepreneur. Let’s face it, you either have “authority” or you do not. The entrepreneur with the $100M exit under his belt, or the publicly-known domain expert, does not really need help.
Jason is right that most things cited as competitive advantages are flimsy structures easily knocked down. Things like passion, design quality, obsession, etc cannot be promised. They must be proven. If you aren’t a business “celebrity”, do not be discouraged. You can succeed with hustle, smarts, a strong customer focus, and staying power.
Let’s imagine two scenarios for the pre-proof, pre-initial-traction entrepreneur asked about competitive advantage: 1. you are applying to an incubator a la Y Combinator or Capital Factory; or 2. you are applying to seed/angel/micro-VC investors.
In scenario 1, if you get asked about competitive advantage, don’t fake it. If you have a good one, use it. Otherwise, be honest that it is an execution play and sell yourself as best you can. There’s no shame in being an execution play. Look at Zynga and Groupon — they have built competitive advantages on multiple fronts as they have gone along (brand strength, capital raising, domain knowledge, sales/distribution, etc).
In scenario 2… wait… why are you in scenario 2? Instead, shore up your savings account before starting a company, then spend your time on the business, not chasing investors. Don’t spend your time obsessing about theory and powerpoint slides that are immediately dismissed. It will take time to get “product-market fit” and initial traction. Use that time to build authority, not just your product.
Still, on the topic of competitive advantages:
- I like competitive advantages built into the product. Marketplaces and social networks have network effects. Data-driven businesses can always stay one step ahead of new entrants.
- Technology can be a real competitive advantage if you are tackling a gnarly problem, but you must reality-check whether the complex technical solution is really necessary, or if the 70% solution would suffice (if so, go with the speed of the easier solution).
- There are sales and marketing competitive advantages: in the enterprise space, signing up marquee beta customers makes a big difference; exclusive distribution deals are another example, albeit very difficult for a super-early stage startup to pull off.
- Business model innovation *can* be a competitive advantage against incumbents, although it needs to be a radical enough change that would tie their channels or supply chain in knots to try to duplicate.
If you do not have a monumental competitive advantage, that does not mean you should pick a different business. They certainly help reduce risk, but I have come to the conclusion that the best competitive advantage is really good execution. Speed. Focus. Quality. Hunger. These cannot be sold to a cynical investor, but they do need to be promises to yourself.
(Photo of Bodiam Castle by antonychammond, via Flickr, Creative Commons)