Gaining a Competitive Advantage

From a menu of growth options, entrepreneurs, generally choose the one they think will lead to the most favourable outcomes, such as superior profitability, increased market share and improved customer satisfaction. These are some of the “fruits” of competitive advantage, and they all contribute to the value of a business venture. However, when innovation is the goal, failure is always a risk. With that in mind, we offer a few “rules of thumb” that may help to reduce the risk in gaining a competitive advantage through innovation:

• Base innovative efforts on your experience:- Innovative efforts are more likely to succeed when you know something about the product or service technology.
• Focus on products or services that have been largely overlooked:- You are more likely to strike “pay dirt” in a vein that has not already been fully mined and in which competitors are  few.
• Be sure there is a market for the product or service you are hoping to create:- A new product or service is doomed to failure if the pool of potential customers is too shallow to generate enough sales for the company to recover its cost of innovation, along with reasonable profit.
• Pursue innovation that customers will perceive as adding value to their lives:- It is not enough to create a product or service that you believe in; people become customers when they believe your product or service will provide value they cannot find elsewhere.
• Focus on new ideas that will lead to more than one product or service:– Success with an initial product and service is critical, of course, but investment in innovation packs even of a punch when it also leads to other innovative products or services.
• Raise sufficient capital to launch the new product or service:– Many formal investors will take on market risks, but they will not accept product risks. In other words, they want to see at least a working prototype, and preferably a developed product, before the invest in a new business venture. To get to that point, the entrepreneur will most likely need to rely on more informal sources of capital, such as personal savings and investment from family and friends. This requires forward planning and investment.

While one innovation can provide a launch pad for a new and interesting business, continued innovation is critical to sustaining competitive advantage in the years to follow.