Veechi Curtis - Small Business for Dummies

In this chapter’s preceding sections, I explore the concept of strategic advantage in relation to a range of possible businesses. I like to work with examples in this way because the different business scenarios help to highlight how this concept changes so much depending on the context.

In this section, I help you to apply the concept of strategic advantage to your business. If you’re struggling to come up with anything that’s special about your business — maybe you haven’t stumbled on that winning idea quite yet — please do persist. The process of identifying your strategic advantage is even more important for you.

One good way to broaden your sense of where your strategic advantage may lie is to look at your existing customers and their buying patterns. (Or, if you haven’t started your business yet, imagine what these answers might be.) Ask yourself these questions:

When customers come to me, why is that?

When potential customers go to my competitors instead, why is that?

When potential customers make an enquiry but end up not purchasing my goods or services, why is that?

Are the benefits I offer (or intend to offer) to my customers unique?

I like asking these questions because getting the answers usually means engaging in some market research. This naturally crosses over with competitor analysis, which I talk about later in this chapter.

Honest, ongoing market research that compares the benefits your business provides to customers against the benefits your competitors provide is essential to business success.

For a strategic advantage to be really worth something — in terms of the goodwill of your business or your likely financial success — this advantage has to be something that you can sustain over the long term.

I like to think that any really strong strategic advantage should have three attributes:

The advantage can’t be easily copied by others. The ideal strategic advantage is one that’s really tricky for your competition to copy. Examples are a winning recipe or flavour (think Coca-Cola), a unique synergy of skills within your organisation, or expert knowledge that few others have.

The advantage is important to customers. Think of the farmers who switched to growing organic produce in the early 1990s, before organics became more mainstream. Many of these farmers did really well because organics were so important to particular customers. (And although the advantage was relatively easy to copy, many authorities required a seven-year lead time with no chemicals before a farm could be officially certified.)

The advantage can be constantly improved. If you can identify the thing that gives you an edge and constantly work this advantage, you have a strategic advantage that is potentially sustainable in the long term.

When Steve Jobs and Steve Wozniak started Apple, one key strategic advantage was their match of skills (Wozniak’s knowledge of electronics and Jobs’ marketing skills), along with a mutual interest in great design. The synergy of their skills was hard for others to copy, the beautiful design was something that customers really wanted, and Apple was in a position to continually improve and develop this advantage.

Don’t fall into the trap of thinking that because you’re cheaper than everyone else, this is a strategic advantage. Being cheaper than everyone else usually means one of two things: Either your business isn’t as profitable as it should be, or your competitors can grab your strategic advantage at any moment just by dropping their prices, too. Usually, being cheaper than others is only a strategic advantage if you have some special skills, technology or volume of production that enables you to be cheaper.

Sometimes your strategic advantage isn’t something that’s blindingly clear from the moment you set out in business, but instead grows over time. Your skills grow as you develop in business, and your understanding of how you’re different from the competition consolidates as well.

From time to time, you can review your strategic advantage by asking yourself these questions:

What am I naturally good at? (Or what is my team good at?) Where do I feel I have been particularly successful in my business?

What do I offer to my customers that’s either cheaper than my competitors, better value or unique in some way?

Does a point exist where what I’m naturally good at connects with what I do better than my competitors? If so, how can I build and develop this?

When our local osteopath first started out in business, he didn’t really have anything that separated him from the competition. The only thing that was really different about him was that he was an elite rock climber in his spare time. However, as his business grew, he became expert at treating other climbers for their injuries. His business developed, and now he treats climbers who not only live locally, but also come from interstate. He even does some international consultations (and, yes, if you’re wondering, some parts of an osteopathic consultation can be conducted via Zoom!). This combination of skills — being a natural climber and a highly trained osteopath — is hard to beat, and a true strategic advantage.

One common mistake people make when starting a new business is that they’re overly optimistic about the demand or interest in their product or services. A sunhat with a solar-powered fan on top may seem a good idea, but is anyone going to be seen dead wearing such a thing? In the ideal world, find a way to test the demand for your business idea before you invest too much capital or time in its development.

A friend of mine had an idea to start a business selling handmade timber beds. He decided to test this idea by running a stall once a month at the local markets. The response seemed good at first, but he soon found that people were reluctant to pay the extra dollars for his products, with people comparing his prices against the mass-manufactured timber beds made from poor-quality pine and available from large discount furniture chains. His profits were also lower than expected, and the time required to liaise with customers about their individual orders was higher. The result was that he decided not to pursue this business idea, but to explore other ways of making money instead.

In most situations, the business with the highest potential strategic advantage is going to be the business that requires the most capital or involves the most risk of failure. For example, in Table 2-1earlier in this chapter, the business with the highest number of yeses in the strategic column is the toddler safety business. This business has the advantages of being a new idea, and something that clearly adds value for customers, but involves fairly substantial risks. Because this is a new service, people aren’t going to look around thinking to hire someone to make their home toddler-proof. This business will have to invest significantly in marketing to make consumers aware of its services and may yet find that demand is so weak that the business idea is unsustainable.