Whatever happened to building strategic competitive advantage? With all the talk of business model generation, lean startups and customer development you might be forgiven for having thought that competitive advantage was all a bit last season. If you spent good money on a business degree that taught you otherwise, never fear. All is not forgotten.
Alex Osterwalder, author of Business Model Generation, has had some interesting thoughts on competition. His view is that competition is part of the environment or operating context for a business model, and is not part of the business model itself. Many of the comments think otherwise, debating the pro’s and cons of designating competitive advantage as being in or out of the business model. Does it matter so long as you are able to change your business model to respond to competitive forces? Let’s take a closer look.
Both Steve Blank‘s customer discovery and Eric Ries‘s lean startup have you iterate through a bunch of business models until you find something that works. The basic idea is to develop an initial business model (using something quick and disposable like the business model canvas) and run it through a series of tests, changing the model until your tests work. Initially this might focus on the value proposition, for example:
- The Problem/Need Hypothesis (Customer X has a problem, and needs to solve it), e.g. teachers have a problem when it comes to creating new lesson plans each time the curriculum changes, they need a way to shortcut this time-consuming process
- The Solution / Fit Hypothesis (Solution X effectively solves the problem), e.g. high school teachers will trade lesson plans at $25 each through an online trading platform
- The Chanel Hypothesis (Channel X will effectively create customers), e.g. SEO through LinkedIn groups will attract 75 new signed up customers per week
Starting with an idea to develop a lesson plan exchange for teachers, you might try out some simple (and testable) hypotheses to find out if there is a problem worth solving, and whether or not your idea is up to the job. Later on you might add in tests for customer retention, operating costs, and revenue, but the main point is to validate your basic value proposition.
But when should you test for competitive advantage?
Ash Maurya adds in a section on Unfair Advantage to his Lean Canvas, which is based on the intersection between customer development, lean startups and business model generation. Think of it as a placeholder to spell out your sources of competitive advantage, and more importantly as a place to design and test your hypotheses about what works as a source of competitive advantage. Here’s an example test for unfair advantage:
- The Resource Control Hypothesis (Relationship X will prevent competitors from accessing Resource Y), e.g. partnership agreements with school districts will block competitors from accessing teachers in that geographic region
I’ve used a resource based test since Ash seems to follow this line of thinking in his explanations of the Unfair Advantage box. Other sources of competitive advantage could also be used here, with whatever tests are needed to validate them. Although, it is worth noting that both the lean canvas and the business model canvas are execution agnostic, in that they detail how the business works and not how to get there.
I like the idea of having a specific section to spell out your thinking around competitive advantage. It gets the concepts out of the way early, and avoids potential problems in finding that whilst your business model works in isolation, it isn;t really sustainable in the long run. I also really liked the sections on business model design patterns that Business Model Generation presents, and have found them to be an extremely useful way to understand and model complex business models and their sources of competitive advantage.