… but we have the following advantages …
In the previous section we described how the business differentiates itself from its competitors. This next section on achieving competitive advantage, sets out to show what additional advantages (unfair advantages) the business has to allow it to compete and win in the market place.
A business is creating competitive advantage over its competitors when it can achieve higher the industry average profit margins on its products. This can happen due to a number of factors including cost advantages, and superior product offerings. The main objective of the business is the make the competitive advantage sustainable.
Cost advantages or comparative advantages of a firm occur when the business can manufacture a product at a lower cost that its rivals, giving it the ability to sell the same product at a lower price or higher profit margin.
Superior product offerings or differential advantages occur when the business has a product which is perceived by the customers as substantially better than the competitors products.
Even if a competitor were able to make an almost identical product, your competitive advantages should enable the business to win, build and maintain market share in the chosen target market.
Competitive Advantage Examples
Examples of things which might give your business a competitive or unfair advantage include the following:
- First to market
- Barriers to entry
- Available funds and working capital
- Key partnerships and relationships
- Access to expertise, special skills and talents
- Distribution rights
Competitive Advantage Presentation
The business plan competitive advantage section is best presented in a two column format. In the example below, the first column shows the competitive advantage, and the second column gives a brief comment about the advantage. The comments section can be used to cover additional details of the competitive advantage, including how long it might last, and how it helps the business to obtain market share.
An investor will look to see if there is a sustained competitive edge, capable of further development, which will allow the business to build and hold market share.
This is part of the financial projections and Contents of a Business Plan Guide, a series of posts on what each section of a simple business plan should include. The next post in this series sets out details of the market share the business plans to win using its competitive edge.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.