"Shit, that's not fair!" When does a competitive advantage matter most?

I often see startup pitches that contain slides on competitive advantages. I rarely see startups with any real, significant competitive advantages and when I do I get very excited.

Here are a bunch of (not) competitive advantages I've seen:

• we're enthusiastic!
• we have having passion!
• we are going to work harder than everyone else
• we're built in the cloud (I put this one in an OtherInbox deck once)
• we're students so we know the student market (replace "student" with anything)
• we're going to charge less money (I hear this so often)
• it's going to be just like XXX  but we're going to let people do YYY
• we're very, very excited!

None of these are real competitive advantages. You're better off just saying that you don't have any significant competitive advantages at this time and focus on why that's not as important in your situation or how you plan on acquiring competitive advantages.

Most startups don't have any significant competitive advantages (besides being a startup). You don't have to have a competitive advantage to succeed. But competitive advantages reduce risk and that's why investors are trained to look for them.

What are some real competitive advantages?

• Network effects (once you get there)
• Intellectual property
• First mover advantage (debatable)
• Relationships
• Rare expertise

Does a competitive advantage matter more at some times than at other times? 

Competitive advantages are rare. They can be very significant. They are the kind of thing that makes the other guys say to each other, "Shit, that's not fair!" 

I think that there are times when competitive advantages matter more than others. If you are entering a mature, crowded marketplace then having a competitive advantage is more important to me. If you are creating a completely new space or if all of the competitors are small and insignificant then a competitive advantage is still desirable but can be offset by other benefits. If you're in a niche that no one else is paying attention to then there may not be any competition to worry about anyway.

If you're a startup entering a mature market, you're fighting uphill to begin with. The existing competitors have more resources, existing customer relationships, and probably know the market better than you. If you don't have some secret weapon it's going to be hard to make any progress or get any attention.

If you're creating something completely new or in a market that is immature and doesn't have any entrenched competition, the playing field is fairly even. Chances are no one has a competitive advantage.

If you're niche is so small that there is no competition at all, then competitive advantages don't really matter (at least not right now). 

Competitive advantages are always good. I don't want to downplay them or say that they aren't important. But I'm tired of hearing about fake competitive advantages. If you don't have any, just say it. 

Comments

[Juan Sequeda]

Excellent blog post! I think every entrepreneur should read this ASAP and reconsider their pitches when it comes to competitive advantage. Questions that I ask myself when thinking about new ventures are:

How are you different from everybody else?
How can you make sure that others will not be similar to you?