Building barriers your competitors can’t jump

The key to blocking your competitors is controlling the “essential ingredient” that gives you a competitive advantage. It might be a patent, a trademark, a licence or even an exclusive supply agreement.

 

Long term growth only occurs when you build a sustainable competitive advantage. Not only do you need to be better than your competitors, you actually need to be smarter.

The smart business owner takes a holistic approach to creating barriers to entry to their competitors. They work on all aspects of their supply chain to ensure that, wherever possible, they can construct competitive advantages or competitor blocking strategies in every phase of their business.

One of the most successful strategies is to control the “essential ingredient” that creates the customer solution.

Every customer solution will have within it some combination of ingredients, components and/or knowledge that the business must source from others. By combining their own knowledge, processes and in-house constructed components, they create a solution to the customer’s problem.

In a situation where a unique ingredient, component or piece of knowledge is critical to the customer solution, gaining control of that element gives the business a significant competitive advantage. Other businesses competing for the same customer transaction will be forced to put forward a less-than-optimal solution.

The classic barriers to entry in this respect are the traditional intellectual property sources; patents, licences, copyright, trademarks and brands. These have the advantage of protection under the law and can be readily defended.

But there are many other components in any solution that can be just as effective if the business can lock down a unique source of supply, either for the whole market or just for the geography or sector that is the target market. Thus an exclusive supply contract, outsourcing manufacturing for your own designs, buying the supplier or buying up the available inventory can be just as effective.

We often overlook knowledge as a source of supply that can be denied to our competitors, but if you contract in the available experts or if you employ them, you effectively own the customer solution.

You should also not overlook building deep expertise as a competitive blocking strategy. By building a team that has the reputation of being the best to solve a specific complex problem, you are effectively creating a barrier to entry.

This is especially effective if the problem is very complex and the market is relatively small. By taking a leadership position you can effectively take out enough of the market demand to make the remaining market too small to encourage competition.

The blocking process needs to start with the customer problem. What can you do to provide the best solution and what ingredients, components and knowledge elements can you control that will give you an effective advantage?

While you may not have it now, start looking for a new solution that will allow you to create such an advantage. One approach might be to look at new products and services in similar markets overseas and acquire local rights to the products.

If done right, controlling the essential ingredient of the customer solution can be a very effective competitive weapon.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.