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5 Basic principles of competitive advantage

good strategy bad strategy

I’m a sucker for strategy books. So as I’ve been reading Good Strategy Bad Strategy, I’ve taken some notes I want to share with you about a very important topic: Competitive Advantage.

Competitive advantage is different today than it was in the industrial era, but these five basic principles still apply:

  • The secret to using advantage is understanding this particularity: No one has an advantage at everything.
  • For an advantage to be sustained, your competitors must not be able to duplicate it.
  • Competitive advantage and financial gain are not the same because some advantages are more interesting than others.
  • A competitive advantage is interesting when one has insights into ways to increase its value.
  • The connection between competitive advantage and wealth is dynamic. Wealth increases when the demand for the resources underlying competitive advantage increases.

These principles seem to be forgotten to many a strategist. For example, this past weekend I participated in Startup Weekend, and one of the judges focused on the question of “what is your competitive advantage?”. While a valid question, it is not as simple as it sounds. Can you truly come up with a competitive advantage in a weekend? You may, and many believe they do, but a CA on paper is just a hypotheses. We must also remember that internet based business models are very different from industrial models. And so are hybrid business models.

The point is that a competitive advantage isn’t born from a business plan. You can plan and maneuver to put yourself in a position of advantage, but that takes patience and discipline. The only way to know if you have a competitive advantage is put your idea out there and let the market decide.

Anyway, the world looks a lot different today than when Michael Porter released his book. The basic principles of competitive advantage still apply though, but “what” those advantages look like is what’s different.

 

  • http://twitter.com/rantcliff Rich Antcliff

    Seems like if you wait for the market to decide your competitive advantage you are just playing craps.

    • http://www.game-changer.net Jorge Barba

      It does seem like that and it is how it usually plays out. For the most part, a CA is in the eye of the beholder. For example, did Facebook have a CA when it started out? It maneuvered to one and extended its advantage. Same with Google.

      These companies didn’t start out with a predetermined business model, they found one. Some VC’s get this and are willing to “wait it out”, but most want a business model with a CA from the get-go.

      What are some examples of companies that had a CA from the get-go?

      Thanks for the comment RIch,

      Jorge