Creating a Sustainable Competitive Advantage for Your Small Business
Getting a leg up on the competition — and keeping it there — takes more than a solid product, smart marketing and savvy management. You also need a way to achieve a long-term advantage, a strategy that will provide a sustainable edge over rivals.
“The experts often talk about the importance for large companies to win a sustainable competitive advantage,” says Sarah Gerdes, CEO of Business Marketing Group, a San Francisco-based firm specializing in management and partnership consulting. “But, it’s important for other businesses, too.”
How do you pull it off? Try these tactics:
A long-term contract
Signing a deal with customers that allows you to be their regular vendor makes it nearly impossible for competitors to take business away from you. That’s what Doc Parghi, vice president of worldwide sales and business development at five-year-old AppLabs has done.
From the beginning, the Philadelphia-based software testing company strategically inked one-year contracts, focusing on startups that are more likely than bigger companies to go for such deals. At first, AppLab’s approach was to spend three to six months proving itself to customers, then asking for a long-term deal.
But when it became more established, AppLabs took a different tack, proposing a one-year agreement during initial negotiations, with the understanding that clients would sign on after a few months if they were satisfied with the service. More recently, AppLabs has nailed down four such agreements with Fortune 50 companies, two of which renew automatically. The tactic has helped AppLabs double revenues every year.
Exclusive distribution rights
If you can arrange to become the only company distributing someone’s products, you’ll have a nearly impregnable line of defense. Just look at Travis Schneider, CEO of StarBrand Media.
The three-year-old Los Angeles-based company has a Web site — www.starbrand.tv — where fans can order fashions and other products featured on popular TV shows and movies. To make it happen, Schneider has locked up exclusive deals with movie studios and networks allowing him not only to feature the items, but get word on what the actors will wear before a TV show airs, so he can be ready at the jump.
Exclusive geographic rights
Arrange to be the sole vendor of a service or product in a specific area, which AppLabs has also tried.
It signed an agreement with a software company to be the only provider of testing services for that firm’s overseas clients. It also made a deal with an association to be its exclusive partner in India. While the tactic hasn’t been as central to AppLab’s success as its long-term contracts, there’s been a handsome payoff.
Exclusive access to a resource
You might be able to win the right to use a technology that gives you a significant edge in the market. In this case, you don’t own the actual patent. But, by locking up exclusive use under certain circumstances, you can still gain a tasty advantage over rival businesses.
Even if you’re not the only one with access to the resource, you’ll still be ahead of the game if it’s something that’s hard for others to lay hands on.
That’s what Eric Ling figured when he started Bubbles Tea and Juice Co., in Columbus, Ohio, a year-and-a-half ago. He uses a special machine that seals plastic cups airtight and prevents leaks. Ling doesn’t have exclusive rights to the device, which is made in Taiwan, where he grew up. But he thinks it’s unlikely to be used by local competitors. “It’s not that easy to find unless you have a connection back in Taiwan,” Ling says.
Go for the gold: a patent
Of course, the piece de resistance is to win a patent for your own technology or product, giving you a legal monopoly on its use. Take Fortius One, a one-year-old firm in Washington, D.C., that provides geography-based business intelligence.
Its patented mapping and analysis tools “provide us with an invaluable advantage,” says CEO Daniel Abraham. Better yet, because the technology was developed by the company’s founders as part of their doctoral dissertations, Fortius One has been able to get around the usual restrictions on intellectual property ownership.
While the university where researchers develop their inventions generally owns the patents, that’s not always true for technology developed as part of a dissertation, Abraham says: “It’s been clearly vetted legally just who the rights belong to.”
Our bottom line
The more you can lock up the use, distribution or sale of a product or service, the better off you’ll be — and the more likely it is that competitors will eat your dust.
Anne Field is a freelance writer at StartupNation.