Startups vs. Incumbents

In my experience starting companies, it is nearly impossible to simply outperform or out work incumbent competition because if it is a profitable industry they most likely have unlimited supply of capital, in the form of cash-flow and profits, to reinvest in labor and equipment. You have to select and establish the right competitive advantage. Below are several successful competitive advantage strategies:

• Unique: Your product or service is so unique that the competition hasn’t thought of it. The danger is that unless your idea is legal protectable or you can keep your property process a secret then your competition can simply copy your product or service. Establishing a unique brand is one way to establish yourself in a way that is hard to replicate. Pharmaceuticals area good example of competitive advantage from legal protection. Coca-Cola is a good example of a competitive advantage by keeping properitary informaiton secret.
• Understanding: You have a understanding of the market that your competition doesn’t have. This is typically understanding a niche customer need that isn’t being addressed by the rest of the industry. A great example of this is the computer industry. Acer and Dell understand that some people care more about price compared to quality, while Apple and Sony understand that some people care about quality and will purchase a computer at almost any price.
• Willing: This is personally one of my favorite strategies, because it allows you and your competition to exist peacefully together, as you slowly eat away their business. You are willing to do things or take on jobs that your competition isn’t, because they are either not as profitable, are riskier, or less glamorous. The key to this strategy is to gradually move up the ladder. Ideally you will be able to reduce future competition by owning eventually owning the entire spectrum of jobs, desirable or not.

A fun example of the little guy versus the over funded incumbent is Rocky 5. Check out this video of Rocky vs USSR training style: http://www.youtube.com/watch?v=IwvoTDoO9Hg.