The One Thing Successful Businesses Have in CommonSuccessful Businesses Focus on Competitive Advantage
If you look at the history of most Fortune 500 corporations, you will see that they originally started as a small business, eventually growing into a large corporation. While there are numerous factors that led to their success, there is one thing that successful businesses have in common, regardless of their size.
Building a successful business is not easy. According to the Small Business Administration (SBA) about 50% of businesses fail during the first year in business. The U.S. Census Bureau reports that 400,000 new businesses are started every year in the USA. However, 470,000 are dying. While these statistics are troubling, they are meant to create awareness, not to deter the pursuit of business ownership.
If you are serious about starting or growing a business, you need to focus on the one thing all successful businesses have in common, a strong Competitive Advantage! An edge over their competitors that attracts buyers to their brand.
Developing a competitive advantage begins with defining your “Why Factor”. It answers a crucial question “Why would people buy our brand instead of a competitor?“
What is Competitive Advantage?
A competitive advantage is anything that your business does better than a competitor, or that a competitor does not or cannot do. A competitive advantage can be highly advanced, like a proprietary technology. However, it can also be something simple, such as impeccable customer service.
Your businesses competitive advantage is stronger if it combines several factors. This approach makes it more difficult for competitors to duplicate your competitive advantage. A great example of this is online retailer Amazon.com*, the business began in 1997 by focusing on actual physical books, as opposed to digitally published books which they pioneered. Amazon created an online bookstore that had a huge variety of titles and enabled people to shop from the comfort of their own home. The initial competitive advantages were variety and convenience. Amazon went on to parlay those advantages to expand the business.
They are now the worlds largest online marketplace because of a combination of simple factors. Amazon faced and conquered a major challenge during its initial growth stages, people did not trust online shopping. There was a common fear amongst society, that eCommerce would expose their personal information, including credit card information and bank accounts. There was also concern about the validity of some of the online retailers.
A Great Example of Competitive Advantage
Amazon developed a simple, yet highly effective combination of activities to increase trust and comfort worries. This combination as a whole was valuable to customers.
- Constant order status updates via email notifications
- Providing proof of package delivery by sending a picture of the package on your doorstep
- Easy to access and highly responsive customer service representatives
- Hassle free return policy and process
As you may have noticed, these activities are easy to duplicate, they do not involve any special or extremely unique functionality. The competitive advantage was achieved by being first to market with a solution to earn trust and overcome security concerns about online shopping.
Amazon then developed stronger competitive advantages that required significant investment and are not easy to duplicate. These include development of a highly sophisticated global logistics system, as well as development of its own technology, its own internal systems to host their website and manage large, complex databases. They essentially became their own IT service provider and that grew to become the worlds largest web services provider.
Now Amazon has strong brand recognition and high perceived value, which has become its primary competitive advantage, and they know how capitalize on it. They are constantly entering new market niches and segments, relying on their brand recognition to propel them to market leadership. In addition, Amazon has developed its own products branded as “Amazon Basics”, which means Amazon actually competes with its customers that offer products on their site.
How to Develop a Competitive Advantage?
A strong competitive advantage is strategically developed, usually in the business plan when starting a business. It should then be reviewed as a part of annual planning, and addressed in the annual marketing plan.
It is very rare that a brand can continue to grow by relying solely on its initial competitive advantage. Savvy business leaders are constantly looking to develop new advantages to keep them ahead of the curve. That is one reason successful businesses conduct annual planning and develop new strategic marketing plans.
It is critical to understand that
1. Your approach to developing and keeping a Competitive Advantage must be dynamic, markets change quickly, competitors adapt.
2. Develop a strong competitive advantage by diversifying with multiple factors that provide an advantage.
3. Align competitive advantages with target markets, a product may have a set of benefits that appeal to one market, while also providing additional benefits that add value in a different market. Do not promote all advantages to every market, rather focus awareness on advantages applicable to the target market.
4. Develop a marketing plan that strategically identies and seizes your competitive advantage.
Some examples of a Competitive Advantage include
1. Development of a patented or innovative products
2. Being first to market
3. Access to natural resources
4. Strong brand awareness and value perception
5. Access to new or proprietary technology
How to Keep Your Competitive Advantage
History is full of examples that prove a competitive advantage can be lost. Yahoo was a very popular search engine in the during the beginning stages of public internet access. Yahoo’s competitive advantage was its massive hub of content available to its users. The company’s website was human curated and fitted to attract audiences. Yahoo then utilized website crawlers (spiders) to create an index of different websites.
Then another brand with an odd name begin to gain popularity, Google. They developed an algorithm that seemed to do a better job of crawling websites and extracting data that was a better fit for what users were searching for. In other words, Google seized Yahoo’s competitive advantage.
Do Not Make This Mistake
It is very possible that the leadership at Yahoo developed “confirmation bias”. A strong preference for research that supports the opinions of leadership and minimizes or ignores any other data. This is a very common problem in small and mid-market businesses.
What this means for your business is that you must constantly monitor markets and competitors. It is wise to conduct an internal review at least once a quarter. A review that assesses sales history and trends, feedback from sales and customer service personnel. Along with any information provided by industry associations or other sources that report on industry trends.
We can help by providing a new perspective with an unbiased view. One that is based on deep insight from extensive research, experience with different industries, and strong business acumen coupled with awareness of the external factors (PEST – Politics, Economics, Social, Technology). An Astute Fractional CMO will develop strategies to improve or develop competitive advantages and keep you ahead of the curve.