Business Strategy: Is a Competitive Advantage Sustainable?
High-margin businesses naturally attract competition
If your strategy doesn’t identify what specific markets you compete in and why people will buy from you versus your competition, then your strategy is bad. You’re going to need to rely on luck. In fact, if you’re in a high-margin business, you may not know it but you’re being hunted.
High-margin businesses naturally attract competition, like hyenas to a fresh kill. (If you’re in a low-margin, capital-intensive business, you’re safe from competition but a foolish investor!)
We used to talk about building a “sustainable competitive advantage” in the strategy world. It’s still a wonderful concept. If you can find a beautiful, deserted island with bountiful natural resources to live on, good on you! But the minute you build your home, the neighbors will start to arrive.
I’ve interacted with about 100 CEOs in the past six months around the topic of strategy. I’ve observed a higher percentage of them being nervous about disruption than I have in the past. (See “Will Toilet Paper Become Obsolete?”) I feel both enthusiasm and empathy for those who run those organizations. Enthusiasm because no one has a lock on disruption and they have an opportunity to change their business model before someone else does. Empathy because all of their current systems and the minds of their people will resist this.
In greatest danger are the ones who have the largest gross margin and no intellectual property protection. If they’re capital-intensive, it may prevent head-to-head competition, but it may make them more likely to be disrupted by a new business model — by someone who asks, “How can we serve this need differently?”
When people have their antennae up and eyes open and have a process to look at the future, they think about disruptors, grope for a better business model and sleep easier at night. Those who are head down in a foxhole are either naïve or waiting for the laughter of the hyenas.