Unfair advantates - why technology startups need them

I love the phrase "unfair advantage."  Peter Crouch is a striker at Liverpool who towers over defenders and so gets more than his fair share of headers.  I always look for the same thing in startups (and I don't mean tall people). 

So what can these advantages be?

Preferential market access. 

• Does the company have an exclusive contract with a customer?
• Is there exclusivity for supply in a particular country or region?

Preferential access to technology. 

Is there unique access to a component, product or service that gives the company some form of competitive advantage?  This could be from having developed the intellectual property themselves or having put in place contractual relationships allowing them to exploit it – leading to:

• Lower production costs
• Lower distribution costs (smaller, lighter products)
• Lower prices
• The ability to use a different (and presumably better) approach to a particular problem (e.g. recording music on a hard disk instead of a CD leads to the I-pod)

One of the most important aspects of ‘unfair advantages’ is that they allow you to compete in markets that you might normally ignore.

Consider broadband for a second and some accepted logic for some Western countries.

You don’t want to dig up loads of roads and pavements to lay fibre to carry Internet traffic as this can be very slow, expensive and fraught with legal/contractual problems in some places.  The capital costs of such a roll out can be enormous (I’ve done a $500 million plan for this – expensive isn’t it) and trying to recover these costs can be difficult if the prices paid by users are already falling due to competitive pressures.

As with many cases of creativity, you can look at all the assumptions and start to smash them to see if there is an opportunity.

• Why is the digging expensive?  Because the roads and pavements are already in place.
• Would it cost as much to put fibre in place in new developments?  No – it would be a fraction of the cost.

Now if you have enough new developments then maybe you can start to use the unfair advantage principle.  Can you lock up exclusive contracts with major developers?  Can you build a marketing team designed to sell to developers?

If the answer is yes then you can build a company that delivers broadband (plus TV and phone services) at significantly lower capital costs and can compete in a market that previously you might have assumed was too ‘hot’ to handle.

If you don’t have the unfair advantages then you can look at your market and try to identify what you could do to develop some.  It’s a very interesting exercise in innovation that can allow your company to take huge strides forward.

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