Why Relying on Competitive Advantage Will Never Work in Business
By: Suresh Vasudevan
Tags: Competitive Advantage, Apple, Entrepreneurship, Entrepreneur, Microsoft

Why Relying on Competitive Advantage Will Never Work in Business

Store employees stand in front of a screen displaying iPhones during a preview event at the new Apple Store Williamsburg in Brooklyn, New York, U.S., July 28, 2016. Photo by Andrew Kelly—Reuters

The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question: “What important lesson can transform every entrepreneur’s business for the better?” is written by Suresh Vasudevan, CEO of Nimble Storage.

Anyone who has spent at least five minutes on the Internet has encountered the “one weird trick.” These crude ads seem to infect almost every corner of the web and promise a strange, simple solution to cure diabetes, melt belly fat, and produce any number of additional minor miracles, if only the viewer will click through.

But the “one weird trick” isn’t confined to the world of sketchy Internet advertisements. It’s been a prevailing theory of business success for decades that’s better known as “competitive advantage,” the idea that truly excelling in a single business dimension is the golden ticket to success. Whether it be technology, marketing, sales, customer service, or some other area, this single dimension of greatness is supposed to give a company the wherewithal it needs to beat the competition.

Venture capitalists, for example, have typically included it as one of their “must-haves” before investing. They often call it “unfair advantage” and, most of the time, it translates into a patented technology that competitors cannot easily copy. But competitive advantage doesn’t have to revolve around technology. Microsoft, for example, has long been lauded as having some of the best sales teams in the business, winning in a wide array of markets. Apple receives praise for its unparalleled consumer-oriented design, shipping intuitive products that interact effortlessly with one another. And Coca-Cola has a well-deserved reputation as one of the world’s greatest marketers, absolutely dominating the beverage world.

I hate to throw cold water on such a well-worn piece of advice, but in my experience, the notion that competitive advantage will lead to business success is simply not true. In fact, “competitive advantage” works just about as well as all of those “one weird tricks” — which is to say, it doesn’t work at all.

So, what has changed? Why is this long-held belief no longer true? In today’s highly networked and socially connected world, any single competitive advantage is short-lived as others understand and eventually leapfrog on that dimension. This requires a company to continually invest in extending — or at least maintaining — its competitive advantage. What compounds this problem is the accelerating pace of innovation in every aspect of how a company does business — whether it is in supply chain management or customer support or product development. So, even as a company invests in the area where it has a strong competitive advantage, it needs to ensure that this competitive advantage is not negated by its competitors out-innovating in other areas.

Superior technology, for example, will soon be overtaken in today’s fast-paced innovation environment. As dominating as the iPhone was for its first few years, the Android mobile operating system today controls nearly 90% of the market, according to a new Strategy Analytics report. A crack marketing team won’t carry the day over the long term if the product can’t keep up with market demands. No one can deny that AOL’s marketing blitz in the 1990s made it the №1 Internet company in the world. By 2000, its stock had enough heft to buy Time-Warner in a more-than $160 billion deal. But the advent of Google, the cable modem, and wireless Internet access rapidly made AOL’s service almost entirely irrelevant.

In fact, I’ll go so far as to say that even the companies that seem to win in the crowded and ever-innovating tech industry, thanks to a so-called “unfair advantage,” actually owe their position not just to one stellar aspect of execution, but rather to well-rounded operational strengths across the board.

Take Apple, for instance. Apple’s strengths don’t lie just in design. Many of the company’s advertising campaigns were so innovative, they have become iconic, and Apple is certainly no slouch when it comes to operating not only a large chain of retail stores, but also one of the most complex and robust electronics supply chains in the world. Its innovative marketers and top-notch customer support personnel have built a brand that commands unparalleled loyalty. If Apple had to rely on its design expertise alone, the company would never have become the giant it is today.

There is no getting around it: Entrepreneurs must do the very hard work of building a company that excels in several operational facets and is at least competent in all of the rest. In the early phases as a startup, while it may be appropriate to seek an unfair competitive advantage in one or two areas that really matter, that is not enough to build a company. So the question for a startup should not be, “How do we create an unfair advantage?” Rather, entrepreneurs should be asking, “How do we create a model in which the company will excel across many facets?”

There is no “one weird trick” to winning in business.

Vasudevan is not a direct investor of the companies mentioned in this article.

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