Ok, I promised that I'd come back and contribute some more after my MBA was complete, so I'm back! Here goes!
A competitive advantage is pretty easy to understand: it's just some sort of edge you have over your competitors. Great, but this might get you a few weeks or months where you are beating them, but what happens when they learn to adapt themselves to this advantage you've got, or they copy it, or it becomes otherwise ineffective?
You need a sustainable competitive advantage.
Imagine your company is nothing more than a bundle of resources (capital, stock, staff, processes, IP, your knowledge, staff knowledge, social networks, etc). It's just a big bundle of stuff which works together to produce money.
If you could find/create ONE resource which meets four particular criteria (below), that resource will, in all likelihood, give you a sustainable competitive advantage.
The resource must be:
- Valuable (it must be able to produce (directly or indirectly) value)
- Rare enough that competitors can't get it
- Unable to be imitated by competitors
- Unable to be substituted for another resource which provides the same advantage
Case example: A bridge in my city was leased by a company which sells "Bridge Climb" tickets as a different way to see the city, and as a tourist attraction/quasi-extreme sport. They sell tickets for $300 a head (valuable). There's only one bridge in the city which could be used for climbing (rare) and only ONE contract with the city for this bridge (perfectly rare). There's no similar structure which could be used for a similar purpose (can't be imitated). I can't think of any other resource which could be subsituted to get the same sort of advantage (there might be some small/insignificant ones). Oh, and it's THE iconic bridge in this city. Our equivalent of the Golden Gate, I guess.
Granted, it took a long time for them to get the city to permit them to run their business on their bridge, but they did it, and in doing so, created a very rare, valuable resource which can't be well-imitated or substituted by their competitors.
Now, apply this to your business. You can either find some resource which is tangible, like a bridge, or intangible, like contracts, relationships, knowledge, processes, IP, and so on, or create it. It would be harder to buy such a resource (it's not likely to be on the shelf anywhere!), but you can make them.
Let's also remember what our economist friend Ricardo had to say about making very good money. It comes from having something scarce (back in his day, it was good quality farm land). If it's scarce/rare, and people want it, guess what that means? You can charge $300 to spend two hours walking a massive flight of stairs over a bridge, or charge 5000% more for your product than it costs you to make. And because it's rare, can't be imitated or substituted, you can spend time serving/milking customers instead of plotting manouevres to outwit competitors.
This is one of my favourite (Australian spelling, don't complain, ok?
ideas in business, and I hope it's of some use to you all!
Daniel.
A competitive advantage is pretty easy to understand: it's just some sort of edge you have over your competitors. Great, but this might get you a few weeks or months where you are beating them, but what happens when they learn to adapt themselves to this advantage you've got, or they copy it, or it becomes otherwise ineffective?
You need a sustainable competitive advantage.
Imagine your company is nothing more than a bundle of resources (capital, stock, staff, processes, IP, your knowledge, staff knowledge, social networks, etc). It's just a big bundle of stuff which works together to produce money.
If you could find/create ONE resource which meets four particular criteria (below), that resource will, in all likelihood, give you a sustainable competitive advantage.
The resource must be:
- Valuable (it must be able to produce (directly or indirectly) value)
- Rare enough that competitors can't get it
- Unable to be imitated by competitors
- Unable to be substituted for another resource which provides the same advantage
Case example: A bridge in my city was leased by a company which sells "Bridge Climb" tickets as a different way to see the city, and as a tourist attraction/quasi-extreme sport. They sell tickets for $300 a head (valuable). There's only one bridge in the city which could be used for climbing (rare) and only ONE contract with the city for this bridge (perfectly rare). There's no similar structure which could be used for a similar purpose (can't be imitated). I can't think of any other resource which could be subsituted to get the same sort of advantage (there might be some small/insignificant ones). Oh, and it's THE iconic bridge in this city. Our equivalent of the Golden Gate, I guess.
Granted, it took a long time for them to get the city to permit them to run their business on their bridge, but they did it, and in doing so, created a very rare, valuable resource which can't be well-imitated or substituted by their competitors.
Now, apply this to your business. You can either find some resource which is tangible, like a bridge, or intangible, like contracts, relationships, knowledge, processes, IP, and so on, or create it. It would be harder to buy such a resource (it's not likely to be on the shelf anywhere!), but you can make them.
Let's also remember what our economist friend Ricardo had to say about making very good money. It comes from having something scarce (back in his day, it was good quality farm land). If it's scarce/rare, and people want it, guess what that means? You can charge $300 to spend two hours walking a massive flight of stairs over a bridge, or charge 5000% more for your product than it costs you to make. And because it's rare, can't be imitated or substituted, you can spend time serving/milking customers instead of plotting manouevres to outwit competitors.
This is one of my favourite (Australian spelling, don't complain, ok?
ideas in business, and I hope it's of some use to you all!Daniel.
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