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At a Glance
Businesses need to have at least one strategic advantage to stay in their game, irrespective of their model, growth, or profit. Strategic advantage gives an edge over their competition, helps in not being swallowed by more prominent players in the field, and makes them stand out from the others. For increasing visibility, raising capital, and scaling up, a business must show that it is there for the long haul..
You start a business. Your business model is well-suited for profit and growth, and you continue to be in that trajectory. But does this guarantee your stay in the industry for a long time?
This is where having a strategic advantage can help businesses. A strategic advantage plays a crucial role in a company’s aspirations to not be wiped out by competition. They ought to be tied to the company’s mission, be informed and planned according to network effects (explained later), and offer something to help a company scale with a growth in demand.
What is a strategic advantage?
Any new business or a startup gets launched with lots of ambitions and ideas. Everybody wants to stay relevant in the industry as long as possible. To have sustained longevity and a long-term business, startups need to have a strategic advantage. That will help them in the long run.
Strategic advantage is the intrinsic value a startup develops as they grow and find a footing in their respective field. It is called strategic advantage because this strategy is a company’s value that others lack. So, this can be used as an advantage in terms of its development. Every startup needs a strategic advantage to survive in a highly competitive world.
A profitable startup without a strategic advantage, regardless of industry, is only a proven business model open to copycats searching for a market entry point. Copycats will vary in scale from small entrepreneurs of equal grit to massive corporations such as Facebook or Google. They have unlimited capacity to introduce competition into the industry and eventually run the original startup. If a startup’s founding team does not search and identify one or two advantages, the lack of strategic benefits can be catastrophic.
More precisely, startup founders must identify a strategic advantage that is:
— aligned with their mission;
— additive for the market or usage case;
— informed by network effects or protections such as switching costs or data moats; and — an end-user interface that attracts more consumers or an offering that scales with increasing demand.
Why is adaptability vital?
There is a need for adaptability in a company’s strategy, so it stays relevant in the long run. A company needs to be ready to face new changes and challenges that may crop up from unknown quarters. Adapting to new techniques and technologies may help the companies identify newer threats and competitions early and plan a strategy accordingly. Adaptability is a primary strategic advantage.
It can be challenging to retain a strategic edge as an entrepreneur or startup in the constantly evolving tech market. Building a strategy around a conventional, competitive advantage could prove unwise, given the relentless launch of new goods, the volatile change in customer desires and tastes, and the volatility of value chain players. Industry executives have to respond to the twists and turns of the technology world rather than rely purely on location or size to propel their progress.
How to evaluate?
The faster a company evaluates its strategic advantage and fine-tunes accordingly; the greater is the benefit. Experts have opined on the areas to focus. Mike Ghaffary, General Partner at Canvas Ventures, had shared his set of insights.
Fixing the right metric
To show the differentiating factor, every company needs to capture their vital areas in a metric, to shine within their broader industry context. This gives a clearer picture of their business model. For instance, in their initial stages, Uber had pinned their differentiating metric on the average waiting time of a customer corresponding to the spike in demand. Every minute reduced from a customer’s wait time would lead to an increase in user acquisition. This had helped Uber thrive in the market and emerge as a leader today.
The five forces on fingertips
Any business must be up-to-date with their industry-specific needs, demands, and the market forces driving them. Remembering Michael Porter’s five forces shall come in handy. They shall help a company analyze the attractiveness of their industry and the impacts that shifting trends bring forth to it. This shall open doors to assessing the areas to compete in, and better position them for success. Such assessment can help determine the areas of lacunae in the company’s sector, which can then be targeted to develop a strategic advantage.
For any company, understanding the industry and the basics of market dynamics and network effects is also essential for raising capital. Investors and VCs need to be convinced of what makes their vetted strategic advantage stand out from the crowd to counter questions of their survival in the field without being consumed by big giants.
Discerning the network effects sides’
Network effects, a phenomenon where a product or service’s value depends on the number of customers using it, can play a huge role in a businesses’ growth. Why do some companies give their product for free at the start? Why did Facebook give its service for free to users at the beginning before monetizing out of advertisements? The motto was to attract users. When more users came onto the platform, it grew its popularity and reached its revenue. This is an example of a one-sided network effect
On the other hand, the two-sided network effect is where the demand and supply are matched. Uber, for instance, turned valuable because it deviated from the idea of getting more users to join. Having more users with limited rides increases the waiting time for rides, which shall negatively impact the business. Their approach, therefore, was to keep the demand and the supply side equal.
Knowing the network effects for a business is essential. At the same time, the brilliance is in knowing how the dynamic changes are equally significant. For instance, after cementing its position in the market, Uber is now concentrating on attracting more drivers to its platform instead of maintaining the equilibrium. They are confident after having gained the trust of their users and customers, only a few other apps can catch up to them.
All these aside, it is also essential for a company to be strong on its motto and explain why its strategic advantage would keep them in the game without being swallowed even when other players replicate their business models.
Having a good business can get you profits. But having a strategic advantage will prove you are here for the long haul.