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Do You Have an Unfair Advantage?
Probably not, but that's OK. Start with a competitive advantage and go from there. (#31)
Most early stage startups don’t have an unfair advantage.
That doesn’t stop investors from asking, “Hey founder, what’s your unfair advantage?”
Founders attempt to answer, usually citing their amazing team and the speed with which they’re going to execute.
Those are important, but they’re not really unfair advantages, especially when everyone claims them. At best they’re competitive advantages, which could evolve into unfair advantages.
I often look for what I describe as the “makings of an unfair advantage…” — something that puts you on a different path from competition and gives you a right to play, with a potential right to win in the future.
Unfair Advantages Versus Competitive Advantages
A competitive advantage according to Ash Maurya is, “Something that allows a company to deliver a better product than the competition.”
In a recent blog post, Ash goes on to say, “Unfair advantages are competitive advantages but with the added properties of exclusivity and defensibility — which makes them unfair.”
Unfair advantages are rare, especially in the early stages.
But if you don’t have any competitive advantages you’ll be hard pressed to win. You should only start a company if you have at least one real, validated competitive advantage. Investors will certainly look for one, even at the earliest stages, but don’t chase competitive advantages for investors, do it because it increases the likelihood of success.
5 Competitive Advantages at the Earliest Stages of Building a Startup
Startups are complex entities. They have many moving parts.
Even when you first incorporate and get started there are plenty of variables to deal with. I often think of startups as recipes—they require a lot of ingredients, all mixed together in the right amounts with the right timing, using the right tools. And if you’re not a professional chef, you need a healthy dose of luck too. There’s no formula for startup success, but recipes aren’t really formulas, at least not the way I follow them. 😅
So what are some of those early ingredients that give your startup recipe a better chance of being great?
1. Genuine Insight
What do you know that others don’t?
I’m fascinated by this question. I may not always ask it directly to a founder, but it’s something I try to get a read on quickly.
Has the founder done any real research / homework?
Do they have knowledge about a problem and/or market that isn’t obvious?
How did they identify the problem they’re pursuing?
My goal is to figure out if (a) the founder has truly identified a problem that matters; and (b) the founder has some ‘secret know-how’ that gives them a competitive advantage over others that have also identified the problem.
Genuine insight comes from a few places.
Most commonly it’s from experience. It’s the “insider information” you get from having worked deeply in a space for a good chunk of time, which has given you access to understanding things that others don’t have.
It’s easy to identify problems superficially, we all see them. Our health system is a mess. Housing is too expensive. People are overwhelmed with debt. Finding a job is tough. Etc. All obvious, big problems. And when a founder is attacking a big, obvious problem there’s a good chance they don’t have any insider information or genuine insight that gives them a leg up; they see the problem in the same way as everyone else, and they have the ego/hubris to assume they can fix it.
I tend to stay away from those founders and opportunities, because there’s no real competitive advantage.
Genuine insight also comes from doing research.
Googling something for five minutes and reading the same news or reports that everyone else has access to doesn’t count. I’m talking real research. Interviewing users. Experimenting. Testing assumptions and hypotheses to uncover meaningful problems that others don’t understand in the same way. It’s possible through this type of rigorous research that you can uncover an actual insight, an “aha!” that you can build your business around. An insight becomes the kernel of a competitive advantage.
Playing inside baseball
You may or may not have heard this term before. Here’s the definition from Wikipedia:
“In American slang, the term inside baseball refers to the minutiae and detailed inner workings of a system that are only interesting to, or appreciated by, experts, insiders, and aficionados. The phrase was originally used as a sports metaphor in political contexts, but has expanded to discussions of other topics as well. Language commentator William Safire wrote that the term refers to details about a subject that require such a specific knowledge about what is being discussed that the nuances are not understood or appreciated by outsiders.”
I love playing inside baseball. More specifically, I love when the founders I invest in are playing inside baseball, because it means they have genuine insight into a market, and hopefully genuine insight into unsolved problems. You can build a business from there.
2. Ability to Sell
If you can’t sell, you shouldn’t start a company.
Everything you do early on is sales.
Raising capital = sales
Recruiting team members = sales
Securing partnerships = sales
Actual sales = sales
Technical co-founders need to do sales too, it’s not the exclusive purview of the “business co-founder.”
Sales. Sales. Sales. Sales. Sales. Sales. Sales. Sales.
Don’t make me bring out a classic Steve Ballmer video…oh what the hell:
There’s something so frightening and inspiring about that video.
It’s easy to hide behind a computer screen and try to sell. A lot of founders focus on:
A social media presence
Sophisticated automation of the outreach process
A comprehensive content strategy
None of these are bad. But they’re not the shortest path to customer acquisition. A lot of founders want to “build the systems” before they prove they can close a single deal.
F**k systems. Dial for dollars and get on with it.
In the earliest stages of your startup, the only tool at your disposal is a sledgehammer. Use brute force to move things forward, iterate & learn quickly, so you can then build the right systems, automations and scale necessary to win.
This fits squarely into the mantra, “Do things that don’t scale,” which I wholeheartedly agree with. It applies to B2B, B2C and other businesses as well.
Most founders aren’t selling as actively and intensely as they should. Your ability to sell is a competitive advantage.
3. Strategic Partners
Partnering early on is tricky.
On the one hand, partners can provide a genuine competitive advantage. But they can also be a massive distraction. It’s not always obvious how a partnership will work out until you really get into it.
Early on, I wouldn’t chase sales partnerships.
For starters, you shouldn’t outsource sales. You want the minimum distance between you and your customer, so you can maximize learning. If you have a partner doing sales for you, there’s a good chance you have very little to no relationship with the customer.
Most companies, especially bigger ones, aren’t going to unlock their sales / distribution channels easily. Their salespeople are trained to “sell what sells.” Your new product/service is an unknown. It’s hard to hit quotas selling new things. The minute they get any push back from prospects they’ll flip to selling what they’re comfortable with.
Be careful about all-consuming partnership relationships.
Big companies tend to overpower startups. They can consume all the oxygen. They can crush you by accident under the weight of their processes and requirements. If you navigate the relationship successfully it can be a legitimate competitive advantage (and possibly an unfair one, because replicating the depth of your relationship will be tough for others.) But getting there is usually brutal.
Focus your partnerships on insights, assets & relationships.
The best partnerships early on are those that are focused on three things:
Insights: Gaining knowledge from within a large organization is incredibly valuable. People inside big companies see a lot and know a lot (even if it doesn’t look like they can act on either very quickly.) Big companies have actual experts with decades of domain experience. They have tons of customers, and those customers have problems you could solve. This is a way to play ‘inside baseball’ through a big company.
Assets: Big companies have a lot of assets, many of which are under-utilized. A good example is data. It’s not easy to get access to the data, but if you can, it can be a legitimate competitive (and possibly unfair) advantage.
Relationships: People often forget that big companies aren’t faceless blobs, but in fact a collection of humans. Great partnerships start by building strong relationships throughout the organization, across the hierarchy. If you can get in and get executive-level attention, you stand to benefit over time.
4. Less Competition
I get it. This sounds ridiculous. You’re probably wondering, “Is Ben telling me that a real competitive advantage is competing with less competitors?” I am. Don’t unsubscribe just yet.
First, there’s no such thing as no competition.
The status quo is a competitor. “Good enough” is a powerful force (i.e. an existing ‘good enough’ solution with lots of inertia that no one really wants to change).
Doing nothing is a competitor. It could be because the existing solution is ‘good enough’, or perhaps the problem isn’t painful enough. Either way, you have to recognize inaction as competition.
Adjacent solutions are competitors. You may not see all of them, they’re in slightly different markets, or solve similar but different problems. You may not consider them competitors, but if your customer does, then guess what? They’re competitors.
Second, there are some markets where the volume of competition is overwhelming.
In these situations, users and customers are incapable of quickly and easily differentiating the options. Everything starts to look the same. If you don’t have a unique value proposition that literally jumps off the page (or the computer screen) and smacks users/customers in the face, they’re not going to notice.
Those are brutal markets to enter. But they’re where a lot of founders go because they’re trendy, and the superficial problems are obvious. “Me-too” startups may get decent funding and survive for awhile when the hype cycle is roaring (as it is with AI at the moment), but the graveyards are overflowing too.
Generally, you find less competition in boring markets, solving boring problems.
Fewer founders are paying attention to these areas. These are industries and opportunities that require more insider knowledge and more work to uncover. They’re harder problems to find, so fewer people bother looking—i.e. competitive advantage.
5. Speedy Execution
Startups are supposed to be fast, certainly faster than big incumbents. Generally this is true. But you may be surprised to learn that a lot of startups are actually pretty slow. They’re not shipping new stuff weekly, doing 20 sales calls per day, or testing and iterating at breakneck speed. They’re talking about it. Sometimes a lot. But executing quickly? Um…
Being a small startup does not automatically mean you execute quickly.
If that were true, speedy execution would not be a competitive advantage. But it still can be. Unfortunately, many early stage startups can’t get out of their own way.
A few common mistakes founders make early on:
Chasing shiny objects: Founders get easily distracted by new trends. They’re influenced by social media. This is particularly common when there’s a lack of other competitive advantages atop which the startup is being built. When the foundation is weak, founders tend to look elsewhere for answers.
Not being intellectually honest: Founders need to surround themselves with a reality distortion field in order to survive. They have to believe something is possible before it happens. But that’s no excuse for pretending everything is OK. Founders often struggle with an inner conflict pulling them in multiple directions. The worst case scenario is when a founder thinks they can will something into existence or rely on luck. Be honest, and move.
Not prioritizing the right things: Prioritizing the most important things isn’t easy because it means having to tackle the toughest stuff first. Most people aren’t cut out for that. In one case, I worked with a founder that believed PR attention was the answer. (It wasn’t.)
Making decisions slowly: Early stage startups are often “doing a lot of stuff” but that doesn’t mean tough decisions are being made quickly. Big companies are notoriously slow to make tough calls, but startups aren’t much better. The parallels are eerily similar. You’ve probably heard the phrase, “Hire slow, fire fast.” Almost no one follows that. You can’t execute quickly if you don’t make decisions quickly.
Not investing in the co-founder relationship: Many startups fail because the co-founders fall apart. You need to invest a lot in the relationship, but it’s an emotional rollercoaster. Big companies don’t have co-founder issues. They may have team issues (and lots of politics) but they won’t fall apart as a result. Co-founders can make magic, but they can also kill a startup.
Speedy execution takes discipline. It means finding the right amount of process to keep things moving, without overburdening the team or letting them run amok. This comes from going through many sets and reps. The more times you do things quickly—the more cycles you have—the more likely you are to find the right rhythm for your team and leverage execution as a competitive advantage. Otherwise it’s just a poster on your wall.
Everything Comes Down to the Team
A common thread throughout everything is the team.
Your team needs to be a competitive advantage.
If they’re not, they’re a competitive disadvantage.
There’s no competitive neutral.
Your team will have the experience and/or commit to doing the research required to get to a genuine insight
Your team (or someone on it) will be able to sell
Your team will have the network to unlock strategic partnerships and execute them effectively
Your team will find the right ways of working, collectively, to make decisions and execute quickly, investing in short, iterative cycles to learn fast
Team. Team. Team. Team. Team. Team. Team. (I’m channeling my inner Ballmer today!)
It’s not enough to have a great team. Or a smart team. You need the right team for the specific startup you’re building.
You Should Only Start a Company on an Uneven Playing Field
Building a successful startup is incredibly difficult.
So why would you start a company on the same level playing field as everyone else?
You’re only making your life harder.
If you start with no competitive advantages, you’re behind the 8-ball right away. You need to decide which competitive advantage you can acquire / achieve and leverage. Some are inherent (i.e. you can’t magically acquire experience overnight), but some are acquirable through effort.
The key is to put together the right ingredients early on, including a few competitive advantages, such that the sum of the parts becomes an unfair advantage. Unfair advantages aren’t simple, singular things that automatically allow you to win. They’re the combination of competitive advantages, rolling up into a business strategy (that’s executed quickly and effectively.)
I often ask founders, “What do you want your startup to be the world’s best at?”
The point is to focus founders on something specific, to hone all of the key aspects of the business including the vision, problem being solved, unique value proposition, customer segment, solution, business model, etc. If you know what you want to be the world’s best at, you can also figure out what competitive advantages you need to get there, and what unfair advantages you’ll need to scale, hold out against the competition, and win.