Michael FoxTuesday, 16 October 2012 00:00
How can I identify my competitive advantage?
Harvard Business School professors Michael E Porter says that competitive advantage "arises from discovering and implementing ways of competing that are unique and distinctive from those of rivals, and that can be sustained over time."
This is also tied closely to barriers to entry. "Ways of competing that are unique and disctinctive ... that can be sustained over time" will make it harder for new entrants to compete in your market.
Some big examples
Let's take a look at some successful businesses and their competitive advantage:
Facebook owns the social graph, and all your friends are on Facebook. I might prefer the features that a new social network offers, but if it doesn't know who my friends are and none of my friends are on it, there's no point in me switching.
It's habit and your default search engine. When they launched in the late 90s, and for a long time afterwards, Google's competitive advantage was its search algorithms. Google provided much better search results.
However, it hasn't been able to completely sustain this into the present time. Microsoft has invested hundreds of millions of dollars in Bing and they've arguably closed that gap, but people don't just switch their search engine. We're all used to 'Googling it'.
If we need to find something we visit www.google.com, or we use the default search engine on our Android or iPhone which is Google, or in Firefox or Chrome, which is also Google.
Google develop and give away the Android operating system and Chrome web browser just so they can be the default search engine without having to pay a fixed fee or a percentage of their search engine ad revenue to Apple of Firefox. Being your default search engine is now Google's competitive advantage.
It has built a network of buyers and sellers.
For a competitor to come in, they need to build up that same network of buyers and sellers. Too many buyers and no sellers won't work, neither will too many sellers and not enough buyers. Building this network is hard to do.
I find this one harder to define but I suspect it's two things.
Firstly, Apple's internal systems and processes allow it to create, develop and manufacture amazing products that completely disrupt markets, such as the iPod, iPhone and iTunes, or create new ones like the iPad.
Secondly, brand loyalty that has developed as a result of competitive advantage number one.
Shoes of Prey as an example
What is our competitive advantage at Shoes of Prey?
There are a few potential candidates:
1. Our website and online shoe designer
While this is different to what is available in the shoe retail market and took some time to develop and build, it's not hard for another company to build an online shoe designer like ours. So this isn't our competitive advantage.
2. Manufacturing custom shoes
This is difficult to do and from our research there aren't many shoe suppliers in the world who will entertain making custom shoes. We work with two of the best suppliers in the market.
That said, we outsource this part of our business, there are other custom shoe manufacturers in the market and the investment for a company to build their own custom shoe manufacturing operation wouldn't be that significant nor would it be difficult for a company with experience in manufacturing, particularly shoe manufacturing.
A company like this might then struggle with the online marketing this business requires, but again that skill can be purchased. So manufacturing isn't really a competitive advantage for us.
3. Our customer base and our relationship with our customers
I think this is where our competitive advantage and potential barriers to entry lie. We've had millions of visits to our site since our launch so we have reasonable brand awareness but, best of all, our customers are passionate.
I think our competitive advantage and main barrier to entry lies in our customers. The thing that would be most difficult for a competitor to replicate would be our customer base and our relationship with those customers. That's the key area we need to continue to focus on, improve and develop the most.
What's the competitive advantage of the business you work in?
Michael Fox managed Google’s online sales and operations agency team for Australia and New Zealand before moving into entrepreneurship. He's a co-founder of Shoes of Prey, an online retail website which allows women to design their own shoes and Sneaking Duck, which sells fashionable prescription glasses online. He blogs in detail about the process of running Shoes of Prey at his blog www.22michaels.com.
Ask Michael or any other StartupSmart mentor a question here.
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