If you can develop a competitive advantage for your small business, you will be able to sell your product or service more easily and more profitably.
Ultimately a good competitive advantage will mean that your business is more likely to succeed and is able to grow.
With the ability to develop a competitive advantage being so important for small business owners, we asked Garry Smith, co-author of Creating Business Advantage: Setting Up and Running A Successful Business to explain more about it;
I am no longer surprised when I ask a new client, “What is your competitive advantage?” and their answer revolves around price. That might be that they are less expensive than the competition, or that they need to reduce costs, or margin, to be competitive.
Features that can be turned into a competitive advantage
A small business has a number of features, any one of which can be turned into a competitive advantage. The decision of which feature on which to concentrate is dependent upon: the business, the product, the customers and the competition.
Let me explain with a real example;
I worked with a start-up business that makes automotive accessories. In the UK alone it was entering into a market that had three major companies as competition and consequently was at a disadvantage in not having the size to achieve the same economies of scale, and also not having the established channels of distribution and retail outlets.
However, what it did have was a lot of in-house know-how on design and production. What was developed was a theme around these skills.
The product was made to precise and consistent dimensions so that a better fit to a car was achieved every time and the product was made stronger than those of the competitors.
This was also achieved by using a material specification superior to similar products in the market place.
The fitment of the product to cars was also made very straightforward and required no alterations to the car in order to fit.
Using a more expensive material meant that there was an immediate price disadvantage but price was not the determining factor in competitive advantage.
The next thing that was looked at was how to get the product to the customer. Here, an e-commerce strategy was deployed with a stylish website with advanced functionality to display the product and offer a comprehensive and immediate price to the customer including delivery to their door, wherever they were in the world. This gave a fully visible price to every customer.
This was then linked to partnering with a delivery company that could fulfil a delivery anywhere in the world both efficiently and effectively. A partner was chosen who achieves an impressive three days to the United States 98% of the time. If our American cousin has ordered before midday on Monday then they will receive their product on Thursday.
This company has now been operating for nine years and revenues, and margins, have increased year on year.
Competitive advantage brings long term business success
As a statement of competitive advantage, two of its original competitors have withdrawn from this sector and there have been no new entrants to this market place. The company has etched out a reputation for quality, ease of fit, and incomparable customer service, which all add up to competitive advantage.
What is generally true of a small business is that it is more agile than a huge corporation. It can take decisions and implement them far more quickly than its bigger competitors, and every small business can take advantage of this. Why should a small business be dictated to and have to play the way the big boys want you to?
I’ll give you a second example. Another start-up company trades in haberdashery products and sources product from the same manufacturers as all of the competitors. Therefore there is no differentiation on product.
However, the major competitors buy product by the shipping container load, which means tens of thousands of individual items in each shipment. The small business has taken advantage of this by making the logistics process much more efficient.
Taking a negative and turning it into a competitive advantage
Rather than shipping huge quantities around the world before reaching the end customers, this company has implemented a system of partnership within the source country and orders are made up individually for each customer and then despatched directly to them by courier.
What also happens is that because each order is relatively small there is a quality check made on each item that goes into an order and, therefore, customers receive only good products, and customer returns are for reasons other than poor product.
This has all resulted in a greater variety of product, quicker availability of new designs, and, yes, we did have to come back to this, a better price for the customer.
But you will note that there is not a squeezing of margins to achieve this. Rather, it is a result of having a very lean logistics process throughout the entire value chain. By attaching that to some slick marketing and creating a system that is a “Pull” system (the output is determined by the quantity that customers want) rather than the “Push” system (the quantity is determined by the production) used by the competition.
It’s another example of how a small business can compete effectively and profitably against much larger players in the same market place.
Find your own competitive advantage and play to your strengths
Competitive advantage is not “rocket science”, and neither is it one-dimensional. It’s about understanding your market, your customers and your competitors and finding a mis-match.
It is like an attacking position in a rugby game where you seek to put your fastest player up against the opposition’s biggest and slowest, or creating a numbers advantage and stretching their defence.
Both teams have the same number of players and play to the same rules. They may even have equal talent but it is the team that has the best organisation, the best team ethic, and the ability to create advantage in the play that will succeed.
So don’t just stop at, “The competition are bigger than me”, which would mean you compete on their terms, and at a disadvantage. Find your own advantage and play the game your way: the way that plays to your strengths.
About the author
Garry Smith is a business coach at Advantage Business Partnerships and the co-author of Creating Business Advantage: Setting Up and Running A Successful Business. Advantage Business Partnerships helps businesses who are serious about growth, delivering performance improvement, top line to bottom line, through business coaching, mentoring and hands-on consultancy. ABP doesn’t just give advice, they’ll do the work with you.
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