How Do I Demonstrate Competitive Advantage?
Entrepreneurs are often quick to assert to potential investors that their product or solution will kill the competition. However, your opinion alone will not be enough to convince experienced investors. You will need to show quantifiable facts and figures that demonstrate how your offering compares to your competition. You’ll also want endorsements from recognized third-party experts to back you up.
While investors love to hear positive feedback from potential customers about your idea, prototype, and business model, you will also need to present a documented business plan. Your business plan should include market research and competitive analysis.
First, your market research should show that your solution addresses a real and growing problem. A solution to a non-problem or tiny niche is not attractive to investors. Instead, investors’ interests are piqued when there’s a total available market of a billion dollars or more that will continue to grow by 10% per year.
Secondly, they want to see a competitive analysis of how you stack up against the top players in the space. Skip the fuzzy marketing terms like “easier to use” and “more features;” if these are facts, you should find a way to quantify them. Avoid the temptation to narrow the definition of your market so far as to imply that you have no competitors because investors might conclude you have no market.
There are many other ways to demonstrate competitive advantages in your presentations, discussions, and business plan, including the following:
- Highlight your intellectual property. We all know the challenges involved in obtaining and enforcing a patent, but when done correctly, patents are still a reliable source of competitive advantage. Don’t forget other intellectual property, including trade secrets, trademarks, copyrights, domain names, and your expert publications.
- Capitalize on your team’s experience. Competitive businesses have great teams, not just great products. Since past leadership success is a competitive advantage, showcase it. If you have team members with proven success in previous startup ventures, this puts you ahead of most startups, and investors will give you extra consideration.
- Promote any inside relationships or customer base. Many markets, including government and education, are especially difficult to penetrate, and connections to public leaders are precious. If you already own a known brand or an existing customer base that is relevant, any market lock or carryover can be a significant competitive advantage.
- Quantify any dramatic changes to the cost or value equation. Most investors agree that cost reductions need to exceed 20% to break loyalty ties and convince customers to change suppliers. Thus, merely squeezing your margins to lower prices won’t help your case. However, any order-of-magnitude cost reductions or customer value increases are significant competitive advantages and should be emphasized.
- Present a clear differentiation and a laser market focus. If your product or strategy is targeted too broadly or attempts to combine several existing products, it will likely confuse customers and not be competitive in any one segment. Your best competitive strategy is picking a market niche with a clear, underserved need and fulfilling it better than anyone else.
- Outline a long-term strategy of maximum depth. While you must start with a narrow focus, make it clear that you are not a “one-trick pony.” Highlight your innovative technology, giving you a great initial product, and documenting a succession plan of expansion opportunities as the business scales. This is clear evidence of long-term competitive advantage.
To survive for any length of time against competitors, you need a “sustainable competitive advantage.” This requires that you demonstrate a competitive lead today, as well as a plan and strategy to maintain that lead over time as the market evolves and as competitors with deep pockets try to replicate your advantage.
Thus, the ultimate competitive advantage is the agility and insight to stay one step ahead of your competitors and changing market needs. No one said it would be easy, but I’m confident you’ll find the payback to be well worth all your efforts.