The Role of “Unfair Advantage” for Startups
Every startup wants to conceive, develop, and ultimately deliver a product, service, or business model that its competitors can’t. When properly formulated, this is called a unique selling proposition, or “USP”. Startups with a USP the competition can’t match have what’s called an “unfair advantage.”
This unfair advantage is the secret sauce in the startup’s recipe, the thing that separates them from the rest.
“Unfair advantage” equals “competitive advantage” when a startup operates in an arena where this advantage gives them a leg up that lets them leave the competition in their wake. In this model, the competition can’t innovate fast enough, or sell as well, or operate as efficiently as the startup. Usually it’s some combination of all three.
Recognizing and developing a startup’s unfair advantage(s) is an important part of the development of successful early-stage startup businesses. There are five distinct areas where unfair advantage contributes to competitive advantage.
These include:
Customer Facing Factors comprising brand, marketing, sales/customer communications, relationship-building, and deliver new customer experience in new ways.
In the CRM software segment successful sales models—led by Salesforce and HubSpot—has led to account-based marketing (ABM) solutions, such as SixthSense, DemandBase, and Terminus with customer facing advantages.
Open source development, freemiums and community products fall into this group of factors.
External Factors can lead to an unfair advantage in the market, such as litigation, accounting and finance rules, regulations and laws, governance changes, government and military strategy, policy and budget changes.
The changes in open source licensing (especially the GPL) in the late-1990s and early-2000’s led to litigation that, in turn, inspired the creation of Black Duck Software technology, and an industry was born.
Government-sponsored next-gen innovation in space systems and transportation has provided unfair advantage for companies like SpaceX (civilian space flights), Relativity Space (3D rocket printing), Kymeta (satellite broadband for remote regions of the world), ABL Space Systems (building transportable launch sites in shipping containers) and others.
Changes in corporate governance over the last 10 years has led to a burgeoning set of startups (e.g. TeamStack, promoting DEI in the construction industry) offering corporate diversity, equity and inclusion (DEI) SaaS solutions.
Internal factors comprising product and service R & D, technology knowledge (especially AI) and IP, product design and engineering, data science, market experience, and business model and scale.
Innovative startups like Droids on Roids, Numerator, Polyform Studio, Civis Analytics, and many others, have leveraged these internal factors.
Established companies like Ridgeback Biotherapeutics, 3M, Zynga, etc., have benefited, too.
Societal Factors and Changes in Perception promoting the unfair advantage involve changes in the way things are done, new business practices, and technology.
COVID resulted in technology companies leveraging the vast expansion of remote work, like NetFlix, NVidea, Peloton, Shopify, TenCent, Zoom and others. However, in this case, the unfair advantage was not sustainable.
Other examples include autonomous cars, flying taxis based on the Uber model, or anti-viral solutions based on mRNA.
Transformative Technologies comprised of exclusive access, one-time or one-off events or changes, and utilization of unique technologies can lead to whole host of unfair advantage-driven businesses.
In 2004, Qualcomm developed and tested “assisted GPS” technology allowing mobile phones to use cellular and GPS signals in combination to locate a user to within feet of their actual location. It enabled Apple, Google, Uber and many other navigation and mapping applications to geo-locate individuals, vehicles, etc.
When IBM unveiled its 127-qubit quantum processor, it was unique breakthrough in processor packaging technology and is likely to lead the way to quantum computer systems with advanced performance. This, in turn, will spawn a whole generation of software companies with an unfair advantage over the current crop of processor and software companies.
Well-Funded with the Right Market Timing is a linked set of factors. VC-funded companies—sometimes dovetailing with investment fads—often emerge with the perception that their marketing timing was just right. Being the first-to-market and having one monstrous round, and multiple subsequent rounds, discourages competitors and gives the lucky startup an unfair advantage.
After funding AirB2B, Andreessen-Horwitz is backing the latest venture of Adam Neumann, WeWork’s founder, called FLOW. It has attracted a hefty valuation of $1 billion and a $350 million investment round for a startup without a product in the apartment rental space. This is clearly an unfair advantage. Too soon to tell if it’s the right timing.
Amazon Web Services (AWS) is a good example of an established company where a combination of factors results in an unfair advantage that compounds over time. In 2002 Amazon introduced developer-friendly SOAP, XML interfaces and other tools in their Amazon Web Services product catalogue. Then, in 2003, during an executive retreat, Amazon’s leadership team concluded that its cloud infrastructure services gave them a huge advantage over their competition. This led to substantial internal funding and executive attention that has only grown in the years since. AWS benefited from building server farms in Oregon and Washington, where they enjoyed relatively less-expensive energy costs for giant server farms.
For startups and emerging companies, finding their unfair advantage is a key initiative, both in early stages and continuing over time. These unfair advantages may stem from single, independent factors, but in reality the “secret sauce” that makes for this advantage is the end result of a number of factors.