One question that I assure you will come up during an investor meeting is “What’s your competitive advantage?” This blog post was inspired by a conversation I had the other day with an entrepreneur who is working on a new startup company. She expressed to me her concern about how to respond to potential investors’ question about competitive advantage and she is absolutely right to be thinking about competitive advantage while she is still developing her product.
In business school, I learned that competitive advantage refers to when a company has created a wider margin between the willingness of its customers to pay for their product and/or service and the low cost the company incurs in order to provide that product and/or service than have any of its competitors have created in the industry. It is important for a startup to establish a competitive advantage but even more valuable to sustain it.
Every company is comprised of resources – its assets, talent, and capabilities. Competitive advantage can exist as a result of intellectual property protection (patents are a stronger case than trademarks are in this context), strategic partnerships that give you access to resources or cost efficiency that you can pass along to your customers, superior service or products than your competitors offer, and/or exclusive rights via permits or licenses. Essentially, what value do you offer to customers where you are exceeding your competitors in doing so and that cannot be easily replicated by others in the market.
Investors are very knowledgeable and especially in certain sectors, plus they are pitched by businesses all the time, so they may already be familiar with your competition but they also want to know that you are conscientious and aware of your target market and the competitive landscape. Make sure you do your market and competitive research and if you can’t identify your competitive advantage, hold off on meeting with investors until you brainstorm ways in which you can create a sustainable competitive advantage for your business. Identifying your competitive advantage will not only help you secure outside funding but it will drive your business’ success.
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