Starting your journey in a new startup is a true gamble. Behind all the glory of the “overnight success” myth is a lot of failure, learning, and trying again. To give your startup the best chance, it must be positioned to leverage its strengths. These strengths can be defined as having three elements.
Firstly, your startup must have a cost advantage compared to your established competitors. By being a nimble startup, you should be able to be operating at a lower cost by being able to negotiate with stakeholders to buy resources cheaply. Maintaining this strength requires a continuous search for cost reductions in all aspects of the business (while maintaining quality).
Secondly, differentiation is vitally important so that customers can recognise your product, and it is perceived as unique. The unique features must provide an appreciable value for the customer, there’s no use in building something that people don’t necessarily want. When customers see a product that is unrivalled, such as the iPod was unequalled in 2006, customers tend to be loyal and price elasticity of demand tends to be reduced.
Thirdly, focus. Pick a target customer within a narrow(er) segment and service that customer with either a cost advantage or differentiation. The idea is that by focusing on a smaller segment, you can provide a better service – because you know them better – and as a result you will enjoy a higher degree of customer loyalty. Most startups pursue a focus strategy before widening their product range or introducing premium pricing strategies.
After you have achieved these three elements, the success of your company relies on the barriers that hinder the entry of any potential competitors duplicating your product or service. The best way to keep ahead of competitors is to develop low-cost features that create blue ocean opportunities (markets that did not exist before). Innovate forward by demonstrating actual savings and an appreciable benefit that a customer can use immediately, before anyone else does.
Uber is a typical example of value innovation. A service originally created to provide an alternative to taxis, Uber has been truly agile in becoming the market leader in most Western markets: from ordinary cars to incorporating luxury cars, helicopters, delivery of food, groceries, a courier packaging service, and cornering the urban transportation market.
When your company possesses the qualities in a product or service that are valuable (to a customer), rare, non-substitutable and hard to copy (to competitors), it will continue to have a competitive advantage. In the long term, if your business has all these qualities but not in full measure and without protection, other competitors will be able to push ahead of you.