Many entrepreneurs address the issue of competitive advantage by creating a competitive matrix. This is a table that looks like this:
This, of course is a description of how a team’s product is different from the competition, not how it is better.
To be a description of how the product is better, the features listed would have to be the critical factors for adoption by the target customer. And this point highlights the fact that one product is not generally better than another. Rather it is better for a particular user for a particular purpose. So a useful product competitive matrix would have to be based on an analysis of a specific customer segment and an understanding of the requirements or features that are valued by that customer. But having a superior product is not the same as having sustainable competitive advantage.
There are three basic steps in determining what constitutes sustainable competitive advantage.
A simple picture helps us focus on this concept.
The question is what are the resources that the firm uses or leverages to create and deliver value. Resources include many things, including:
· Tangible assets such as financial resources, physical resources (real estate, equipment, etc.)
· Intangible assets such as IP, patents, copyrights, reputation, brand
· Expertise and motivation of individuals
· Relationships with customers, partners, suppliers, etc.
· Organizational design, routines, processes.
Here, to repeat, the question is how the firm delivers value to the customer.
We say that a set of resources or capabilities constitute sustainable competitive advantage if they are:
Analyzing the firm's value chain is a useful way to identify the key activities necessary to deliver the venture's products to its customers. Identifying these activities will help the team of entrepreneurs decide which activities should be done within the firm and which can be outsourced. Some of the activities done internally should be based on capabilities that pass the VRIN test. These will be the core capabilities of the new venture.
Read more about value chain analysis here.