2min read My definition of competitive advantage is that it increases revenue by 30% over the competition or is a decrease in cost by 30%. Four sources of competitive advantage include recurring revenue, platform-based solution, network effects in action, and virality. These advantages give your business the ability to scale. The scale comes from revenue increasing faster than cost. Let’s take a closer look at each of these.
In today’s world, you would think every business has recurring revenue. Yet, I find most businesses that are raising funding did not structure their business for recurring revenue.
Recurring revenue helps your business in several ways. It opens up your business to new customers who could not afford your product previously because the one-time payment was too high. By breaking the payment into smaller steps, more customers will be able to afford it.
It also provides an ongoing revenue stream so you can plan your business better as you know how much you will have coming in. It helps you maintain engagement with the customer and gives you the opportunity to find new opportunities to serve the customer. Overall, it should increase your revenue in the long run by at least 30%.
A platform-based solution is a competitive advantage over a single product company as a platform brings an inherent cost advantage. Platforms reuse the research, design, architecture, and product packaging. Customer support is also reused. Consider adopting a platform-based approach to your business.
Network Effects in Action
Most businesses increase in value as the customer base grows as it validates the product/service. Users encourage others to join the platform. This is called Network Effects. As the number of users grows the value of the platform grows as well. If a business can harness that customer base and turn it into a community that more aggressively attracts other users then it’s a competitive advantage.
A key competitive advantage is virality, in which users invite other users to join your platform. Virality reduces your cost of customer acquisition. I once had a CEO tell me, “I wish I had designed for virality rather than revenue.” If you build virality into your product, you will have a larger pool of prospects to monetize as well as a lower cost of customer acquisition. For your next project, consider designing for virality.
Read more on the TEN Capital eGuide: How to Craft a Startup Story
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: firstname.lastname@example.org