What is Your Competitive Advantage?

January 31, 2011

Creating competitive advantage may be the single most important concept for emerging growth stage technology companies. It may also be the least understood.

I’ve written in the past about how competitive advantage creates a link to developing and executing business growth and company development strategies. After all, there’s an undeniable relationship between creating competitive advantage and building exceptional software companies.

But competitive advantage can sometimes fall flat as a business buzzword. To truly harness it, companies need to better define it.

So, what is competitive advantage?

Generally, it is creating something that’s different than your competitors. That something, however, must be perceived by your customers as much more valuable than their alternatives. That means that your product or service must address those customers’ goals better than your direct competitors’ offerings, an alternative home-growth solution, or the option for those customers to choose nothing at all instead.

If you have a competitive advantage over your competition, you’ll be able to win more than your fair share of customers in your target market, without resorting to price competition to accomplish that.

To put it simply, if you create and offer high unique value in your target customers’ minds, then you’ve created competitive advantage. Virtual Advisor put together a great explanation of competitive advantage, defining the concept and detailing how companies can achieve and maintain it. If you feel like you need to better understand competitive advantage, the article is a good read.

What causes competitive advantage confusion?

People often become perplexed by the concept of competitive advantage because it’s sometimes made more complicated than it needs to be with confusing terms like “sustainable competitive advantage” or “long-term competitive advantage.” Those terms simply mean that you’ve created competitive advantage that will maintain your lead for a long period of time.

It’s obviously a good thing to create sustained competitive advantage, but the concept still boils down to doing something differently. It’s important for companies to ensure that their product’s differences are perceived by their target customers as more valuable than the rest of the market. The longer you can maintain those differences, the better off you’ll be.

Which companies excel at creating competitive advantage?

Examples of effective competitive advantage are everywhere. All you need to do is pick your favorite product or company and examine it from the perspective of its uniqueness and value to you. Here are a few examples:

  • Porsche: The German luxury car manufacturer has a uniquely styled 911 series that offers outstanding performance. More importantly for me, it fits my 6-foot, 3-inch frame. Very few other cars in that automotive segment do.
  • Virgin America: I’ve written about Virgin before, but its competitive advantage is the company’s customer service and the perks that the airline offers. From in-flight television and WiFi service, to newer planes, more comfortable seats, and the friendliest staff in the business, Virgin has separated itself as a truly unique alternative in an otherwise uniform industry.
  • Zappos: As the Nordstrom’s of online products, Zappos is successful because it provides excellent customer service that is supported by the company’s aspirations and vision. Over the years, Zappos has never veered from its goal of offering the widest selection and variety of products to its target segment, while providing the absolute best customer service in the market. That makes Zappos different and the company’s customers have consistently rewarded them with their business.
  • Google: Quite simply, the company’s product allows me to very quickly find what I’m looking for. Google is reliable, it works consistently, and you know what to expect from it. Need further proof? ReadWriteWeb describes a few of Google’s other competitive advantages.
  • Facebook: In my experience, Facebook has one of the easiest and best user experiences. It also continues to help me network and connect with old and new friends. The number of Facebook users grows every day and the more of my friends on the site, the more unique value it has to me.

What unique value can you create for your customers?

If you can clearly articulate your company’s value, then you’ve taken the first step toward creating competitive advantage. All you need to do is answer your prospect’s primary question: Why should I use your product?

Your answer should resonate with that prospect and address their pain points in a unique way. If you’ve done that, your company will be well on its way to differentiating itself from its competition, creating all-important competitive advantage.

Founder & Partner

As the founder of OpenView, Scott focuses on distinctive business models and products that uniquely address a meaningful market pain point. This includes a broad interest in application and infrastructure companies, and businesses that are addressing the next generation of technology, including SaaS, cloud computing, mobile platforms, storage, networking, IT tools, and development tools.