In our Value Builder series we explore the eight key factors potential buyers review when looking to acquire a business – maybe yours!
How to Gain a Competitive Advantage Through Monopoly Control
“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.” – Jack Welch, Former CEO of General Electric, Author
In an aggressive ever-changing business world, a company of any size requires a competitive advantage that will distinguish it from the competition. Every advantage helps to showcase your company as a leader within your industry and will make you more appealing to your customers and acquirers.
Warren Buffett is famous for investing in companies with a protective advantage around them. The deeper and wider the moat, the harder it is for competitors to compete. In addition, an enduring competitive advantage also gives an owner more control over pricing, which increases both profitability and cash flow.
Virtually all businesses become commoditized at some point. For example, every sports store carries a few major brands of running shoes: Adidas, Asics, Brooks, New Balance, Nike and Saucony. Each brand offers a cushioning shoe, one to control pronation and an ultra-light racing shoe. There is very little difference between shoes, so the savvy shopper often buys based simply on price.
To combat commoditization in the running shoe business, John Stanton, the founder of Edmonton-based Running Room, has layered on a service to differentiate his business. Stanton offers free group runs to anyone – even non-customers. If you have ever had to go for a run on a cold, dark February morning, you know the prospect can be slightly less daunting when you’re meeting up with a group leader and some fellow runners.
Stanton has been careful to make his running groups accessible to all levels. Precisely at 8:30 a.m., Running Room store managers across North America welcome all new runners. Participants are encouraged to stand under a flag that corresponds with the number of miles they intend to run, ensuring all runners are grouped with others whose workout goals match their own.
Stanton’s combined offerings of free weekly group runs, low-cost running clinics, gait analysis and various other services have allowed him to preserve his margins and scale up a 90-store chain peddling an essentially commoditized product.
Differentiation = Unique and Meaningful
Think less about how to compete on price and more about what differentiates your business from its competitors. If you’re not sure what your point of differentiation could be, focus on finding something that is both unique and meaningful to customers and stake a claim to it.
For example, when Panasonic wanted to enter the crowded laptop market, it surveyed the landscape and saw Apple owned “sexy”, Dell owned “direct”, and HP owned “innovation”. These companies had already staked claims to the big things customers looked for when buying a laptop. However, a small segment of customers wanted a laptop to be rugged above all else. Police forces wanted their officers to have laptops that could stand up to the rigors of the inside of a squad car. Traveling salespeople needed their laptops to withstand the punishment of airport security. Panasonic found a small but profitable niche in developing ToughBook – the most durable laptop on the market. Durability was both something unique in the market and something a segment of the market cared about deeply.
Similar to these examples, once you have identified a specific target audience with a clearly defined need, you can deliver a high-quality product or service better than anybody else in your market.
A complimentary Value Builder questionnaire available from The Osborne Group will provide an assessment of the current potential sales value of your company. The questionnaire is part of a system developed by internationally recognized small business expert John Warrillow with results based on findings from over 17,000 companies. Your answers will help determine what drives up, or undermines, your company’s value and steps you could take to increase its value.
In our upcoming blogs, we’ll examine other Value Builder factors and their impact on your company’s worth. Follow us here for the series:
