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