Written by: Tim Rylatt, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Competitive advantage is not only available to large businesses. Small and medium-sized businesses (SMEs) can also develop competitive advantages that help them grow and scale their businesses, by applying a few simple strategies.
We’ve outlined the 10 different types of competitive advantage and how you can use them to stay ahead of the competition!
What is competitive advantage in a small business?
Competitive advantage is anything that sets your business ahead of your competitors. It is something that allows you to move faster, outcompete, stay ahead or gain financial advantage over the rest of the marketplace.
It is different to your unique selling point/proposition (USP), and this is an important distinction that is often not recognised. Your USP is the value proposition difference that you want to communicate to your prospective and existing customers/clients. It is what you offer that sets you apart from competitors and influences the buying decision of the customer.
Your competitive advantage MAY be part of your USP, e.g., you are the only provider of x service in that territory, BUT there are several other types of competitive advantages that you would not want to directly share with customers e.g., you have greater financial assets than your competitors. Whilst this IS a business advantage, it is not going to sound great to brag to your customers that “We’re much richer than the competition”!
The 10 types of competitive advantage
1. The scale of financial resource advantage
This is about having a good amount of money in the bank and good cash flow. It means that should you want to invest in something or want to try a new methodology, that you can take action promptly and even financially tolerate a failure or a learning experience within that. It also allows for things like scaling up to happen much faster, such as investing in new premises, equipment or a team member.
It can also mean that because of economies of scale becoming available, you may secure better rates than the competition. (Generally, things are cheaper when bought in high volumes).
Financial advantage can be either through your own capital or having access to resources that others are willing to provide (e.g., investors). For many SMEs, however, this type of competitive advantage is relatively hard to achieve.
2. Brand awareness advantage
This is where you have become a known and trusted brand in your market, and this recognition enables higher conversion and less price resistance from customers. If you receive a recommendation, you may well accept it more readily if you have heard and know the brand in question because there is an element of trust established. This can even go to the point where the product or service is not the best in the market, but because of the brand they are chosen over others.
Whilst this can appear to be one of the harder competitive advantages for SMEs to achieve, local reputation and knowledge of your business within a defined geographical area is very possible, whether that be through vehicle livery, actively seeking recommendations and referrals so prospects see your business’ name, sponsorships, community activity or by other means.
3. Intellectual property
Having an intellectual property competitive advantage includes everything from protected methodologies, trademarks, copyrights, through to patents. It is where you have developed your own materials and are able to legally protect them to prevent others using it. For example, the McDonald’s brand, system, franchise and tools are all protected so no one can replicate it exactly the same way. From conversations we’ve had with many IP experts, SMEs don’t tend to protect themselves in this area as well as they ought!
4. Control of the market and new entrants
If you have secured unique access to a particular territory or region, are the only distributor of a product or service, you have a competitive advantage in that you can control that market and are able to prevent new entrants. This can be territory based, but it can also also be about supply chains, rights, regulation or compliance.
5. Technological advantages
This type of competitive advantage used to only be available to bigger companies but now it is very much accessible to the SME market, in fact the nimble and agile structure of SMEs often gives them the advantage to be more creative and innovative.
Examples of these advantages include faster machinery, more effective software, more resilient hardware, greater reach online, and stronger quality processes or lower waste. Your technology allows you to be better than the others.
In today's world, it's important to recognise that technology is moving incredibly quickly and it is getting cheaper too, so do keep an eye on what the competition is doing, and what suppliers are bringing to the market in your industry!
6. Proof and referencing advantage
This competitive advantage means that you have more evidence, stories, recommendations or testimonials than others, whether that be 1,000 5* star Google reviews or regular recommendations coming in per month. These volumes are not easy to keep up with, but crucially they must not be static as experiences date and age, so you have to keep up the effort. Capture the proof of your good service and regularly ask customers for references and testimonials!
7. Innovation advantage
Many businesses will imitate something that already exists, whereas fewer are true pioneers. If you are on the front end of the bell curve when it comes to innovation, set a development plan and targets for improvement, and keep pushing the boundaries!
Taking Apple as an example, when it comes to battery life and camera definition, they are not the best but they ARE continually developing and their brand strength carries them through. Sometimes it isn’t about just one competitive advantage, but several together.
8. Systems and standards
Examples of system and standard competitive advantages may include a heating engineering business that has achieved a gas safe certificate, or an ISO accreditation for a particular methodology.
There are all kinds of things where YOU can set the standard, and create a perceived or real advantage against your competition.
9. Locations and distribution
Fulfilment by Amazon is a good example of this form of competitive advantage. It allows a greater reach than the scale of an SME business would traditionally be able to achieve.
You can have a global enterprise in a day where it used to take decades to build up the warehouses and infrastructure to do it; very advantageous to those with shallower pockets!
10. Unique skills, experience and knowledge
The very top people in their field, whether that be barristers, surgeons, engineers, pilots or marketers, have all invested time in developing themselves, securing qualifications and have years of practical experience too. For example, in the world of business coaching, being a business owner as well as coach, means I have theory, training and real-world experience.
Why small businesses need to define their competitive advantage
It would be easy to dismiss the idea of competitive advantage when you are an SME, as you’ll likely find a bigger corporation who provides similar services to you. But being big and even having a more recognisable brand name than you does not mean your SME business cannot be competitive, or have a competitive advantage over other small companies in your area.
Some of the competitive advantages above ARE less relevant to SMEs, such as financial resources BUT others are highly pertinent, such as having unique skills and qualifications.
When someone commissions you and your small business, they get the craftsmanship, the most highly qualified person rather than the most junior or trainee which is what would most likely happen in a large organisation, for example. It could also be aspects such as your family values, the shorter lines of communication. There are real strengths in SMEs!
Defining your competitive advantage can attract and retain customers but it also guides strategic decision-making, resource allocation, and overall business growth. It is something that gives your business value when it comes to selling it for example.
Making sure you have a sustainable competitive advantage
Ensuring you can sustain your competitive advantage is important. Monitoring your competition and the marketplace is vital so you understand who is mimicking you and advancing on your position. You cannot allow yourself to become complacent, unless you want to become the hare in the parable, racing against a persistent tortoise!
The way to have a sustainable competitive advantage is to plan, be aware of the differences between you and others in the marketplace, reflect on what really matters to your prospects and customers, and take the necessary action.
Sustainable competitive advantage – the key to business progression!
Ask yourself these three questions:
Which competitive advantage areas are your competitors stronger than you in currently?
Which competitive advantage area will you choose to become stronger in and why?
Which areas do you think your target market would benefit from hearing about, and how will you tell them?
As a business owner it is important you understand what makes your business competitive in order that you can provide the direction, structure and/or values to make your business succeed in the market.
Competitive advantage is different to your value proposition or unique selling point but in reality you need both to really thrive, and they need to inter-relate more often than not.
To be truly competitive, whichever area you choose to focus on needs to be something you can sustain. That means proactively managing it and tracking what others are doing.
If you would appreciate some free business advice on your competitive advantage and are a business owner with a turnover of over £100,000, book yourself on to a complementary 90-minute business review where we can discuss how this all relates to your business and give you some tangible recommendations of what to do next!
Tim Rylatt, Executive Contributor Brainz Magazine
Tim is a business coach to smaller/medium-sized business who have found themselves on a ‘plateau’ in terms of performance and want to make a change. He gets real pleasure from seeing business owners reclaim control and create personal/work-life balance. His valuable real-world insight and experience spans many sectors and industries, with businesses at all stages of their journey from start-up through to exiting a business. You would be hard pushed to find a more experienced business coach, having worked with around 250 companies throughout his career. He is also a published author on the subject.