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A solid entrepreneur knows that success made up of 90% effort, and 10% luck.
However, not all effort are made equal. One who spends the whole day talking to random people made a lot of effort, but that is a blind effort. However, one who moves according to the competitive advantages makes each effort count.
Every effort must be made purposeful.
Competitive advantage is a circumstance that puts an entity in a favourable or superior position. It is an edge over rivals. It is an attribute that allows the entity to outperform its competitors. It is the ability to perform at a higher level than others in the same industry or market.
When Cambrian Leap consults for its clients, it usually begins with the following two basic frameworks:
The 'marketing mix' is a foundation concept in marketing. It utilizes the four Ps (product, price, place and promotion) and the four Cs(consumer, cost, convenience and communication). The 4Ps addresses what you are selling to your customers, and the 4Cs addresses why the customers buy from you.
Let's go through an example of Starbucks.
Starbucks' products are mainly coffee and some tea. However, a significant portion is also the unique experience. Notice how they ask for your name when you order, so that when your order is done, they would be able to holler for you. Just observe your friends in Facebook, you would be able to find many posts enjoying such an experience. These two are the main highlights of what is sold by Starbucks.
The combination analysis of 4P and 4C will bring about a unique strategy. After going through the table above, a strategy utilized by Starbucks is to have their cafe where large amount of people tend to gather for long periods of time. These are commercial centers where offices are located, and also shopping malls. You would not see one in other areas. There is a reason for this: they are making the cost for the consumer to choose them to be very low. If the consumer is already there for other reasons such as work, it would not require much consideration to decide to buy coffee from Starbucks. It is along the way anyway, not requiring more than a few steps. Contrast this with cafes in the outskirts, a consumer may need to drive a car to reach it, incurring time and petrol, for the sole purpose of visiting that cafe in the outskirts, and those costs may cause the consumer to not choose to visit that cafe, because it is 'troublesome'.
What you should aim to do after performing this analysis is to tailor your product and your business to keep consumer value high and relevant, incidental cost(s) to consumer low, be conveniently available so they do need to change their daily routine, and to keep engaging your customers on the emotional level. This will give you a strong unfair competitive advantage over your rivals, especially against those who do not know what they they doing as a business, and only wholly focused on their product/service only.
Porter's five forces is a framework to analyze the level of competition in an industry, and how to overcome it. It looks at entry barriers, threat from substitutes, buyers' power, suppliers' power and rivaly intensity. You do not want to operate in an industry where any random person can compete with you, where it is easy for customers to switch over from your products to another product, where customers and suppliers dictate you and where you spend everyday focusing to countering your competitors.
Let's go through the cafe industry again.
When we perform an analysis, the few points we should consider in examining the suppler power, intensity of rivalry and buyer power are the number of players, the level of consolidation and the rate of merger and acquisitions (M&A). These points will inform us how much we as business in the industry are able to control. For example, since there are many cafe out there, customers can always shop around until they find one that is the cheapest at the right quality. What this means for the cafe owner, if there is no unique selling point, it is difficult to gain new customers. A unique selling point is branding, like Starbucks, and this helps them consolidate themselves in the market, and become more dominant. Such that whenever a new customer wants to try coffee, that customer tend to start with Starbucks. Hence, being a dominant player is detrimental to smaller players. If it becomes acceptable to purchase and sell a cafe, this would cause the market to consolidate much faster, leading to a situation of a race to consolidation where the one who expands the most wins.
From the entry barrier perspective, it is easy to start a cafe: attend a barista course (few days long), buy a coffee machine, rent a location and a basic generic cafe is setup. One may make it easier by operating out of a car. With such ease, there is a very high probability of a new competitor appearing any day. Due to that ease, it makes it clearer why the cafe industry's competition level is very highly intense.
Substitutes form a big threat to coffee cafe owners, there has been growing trend advising consumers to switch over to tea and juices. They market the multiple health benefits of tea and juices, increasingly influencing the market to choose health over taste. This puts coffee in the market position where coffee is only about taste and to keep people awake. It doesn't seem like anyone is challenging back this threat by flaring the antioxidant benefits of coffee. This is likely because the cafe owners as a group are unwilling to cooperate with their rivals to collectively defend themselves. In such a situation, more consumers are likely to switch to substitutes.
This framework is very useful to help us decide whether we should enter a particular market, and the strategy needed to succeed. If the rivalry intensity is too high and the business power is too low, we should consider skipping it. Alternatively, we know that the cafe industry is largely fragmented with few unique selling points, hence this may be an opportunity to dominate the market with a strong local unique selling point. Conversely, if one remains a generic cafe, and does not carve out its regular customers quick enough, that cafe tends to go bankrupt very soon.
Study modules of these frameworks are easily available online. I highly recommend anyone who wants to have a more solid entrepreneurship journey to familiarize and apply these frameworks. It keeps out nasty surprises and makes the journey smoother.
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