Updated: Nov 7, 2021
Competitive Advantage is what sets your business apart from the competition. In order for your business to be competitive, it should have a defined product or service in a specific market segment.
Many entrepreneurs wade into the water before doing adequate market analysis to see how their offering will fare in the market. Success for your business will be dependent on your knowledge of yourself, your offerings, your competitors and the market you're entering.
Is your business ready to compete in your respective markets? Some key questions to answer in order to make this determination are:
What do I want to offer (product)?
Who is the target market (customers)?
Who is the competition in that market (competitor)?
What are they doing right?
What are they doing wrong?
How will my business differentiate itself from the competitor i.e. what can I do to make my customers want to come back?
The answer to number 5 can help you create a product that sets you apart and puts you ahead of the game. Your business could benefit from the competitor’s weakness and gain a niche market.
CAN YOU LOSE YOUR COMPETITIVE ADVANTAGE?
Let's look at this example of a startup I worked for in the early days of my corporate career.
Tech Connect Canada [name changed] had the answers to all the questions above when they introduced their SmartBusiness product pre-2000. This was a small company of approximately one hundred employees, started by two American entrepreneurs. Internet usage was a novel idea at the time and most companies were just beginning to realize the benefits of being connected to the world wide web.
The product was very innovative since no other technology company was doing it. The objective was to make multi-tenant corporate buildings “smart” by installing a high capacity router in the building and installing and connecting fiber optics to all the floors to provide internet access to the building’s occupants. The advantage for Tech Connect was that most Telco companies were only providing connectivity to single customers.
Employees were excited about the vision and worked feverishly to build the customer base.
Within a year our customer roster had grown to over one hundred customers in two North American countries. With this success, management was beginning to think globally and was reportedly in negotiations with European entities to enter that market.
As such, Tech Connect enjoyed a comfortable advantage as the sole provider of the SmartBusiness product. It's highly motivated, culturally diverse teams in a brand new enterprise was attractive to potential clients and they bought in.
They formed strategic relationships with other tech leaders and by now had gained a mammoth footprint in Toronto and the USA. I wrote about the importance of strategic relationships a few weeks ago, and today I'm including it again as a strategy to growing your business and gaining a competitive advantage.
Things Come Tumbling Down
It was evident that trouble was brewing when a year later, employees were being called into the accountant’s office and being informed of delays in salary payments. We also found out that vendors and creditors were also not receiving payments on time. This continued for a few months and caused an obvious decrease in productivity.
Employees were kept informed of the situation through many meetings with potential investors and consultants who could supposedly help to turn things around. Despite the charisma shown by the founders at the beginning, employees quickly lost faith in them as the situation continued to deteriorate. We started to see them as a group of fast talkers who could not be trusted.
Employees later found out that the root cause of the problem was that, while the company was making money, management was overspending based on pending deals with potential customers. Several of these deals failed to reach fruition resulting in the situation described above. Tech Connect was in a downward spiral because of poor financial management.
"Newly formed organizations…are especially vulnerable because they often lack cash reserves and managers who are experienced in handling crises”. (Robert Vecchio)
Patricia Schaefer at businessknowhow.com tells us that one of the seven reasons that new businesses fail is overexpansion. She says, "A leading case of business failure is overexpansion. This happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many bankruptcies have been caused by companies expanding too quickly.“
In the end Tech Connect filed for bankruptcy owing thousands of dollars to their employees and suppliers.
As you launch your business and look for ways to grow, remember that it is equally important to maintain the competitive advantage after you've created it. One way to stay on top of this is to perform strategic planning and analysis of consumer and market trends. You should also ensure that you have enough capital to meet the growing needs of your business.
Tech Connect definitely had a niche product and the right market but lost their competitive advantage due to lack of foresight and poor financial management.
Why not get ahead of the game by booking a strategy session with me? Or enroll in our signature EOF Mentorship Program where we lead in analyzing market trends for new businesses to rightly position your offerings.