Communicating defensibility against copycats and competition is critical when pitching your business model to investors and key stakeholders.
This is the job of the Unfair Advantage box on the Lean Canvas — and it’s one of the most challenging boxes to fill, especially at the outset of an idea.
Today, I’ll outline the characteristics of an unfair advantage, share sources of unfair advantages, and show you how to formulate your unfair advantage strategy.
Let’s dive in.
What is an Unfair Advantage?
A real unfair advantage is something that cannot be easily copied or bought.
- Jason Cohen
Examples:
- insider information,
- a dream team,
- personal authority,
- network effects,
- scale economies,
- etc.
Don’t Confuse Competitive Advantages With Unfair Advantages
A lot of people equate unfair advantages to competitive advantages. While related, they are not the same.
A competitive advantage is something that allows a company to deliver a better product than the competition.
Unfair advantages are competitive advantages but with the added properties of exclusivity and defensibility — which makes them unfair.
Some things like operational excellence that lead to better design and higher product development efficiencies can be competitive advantages but fail the unfair advantage “cannot be copied” test.
Other things like branding can be both a competitive and unfair advantage.
Example:
- Design is one of Apple’s competitive advantages. But while good design is hard to create, it’s easy to copy. Apple’s real unfair advantages come from elsewhere.
Anything worth copying will be copied. If it can be easily copied or bought, it’s not defensible — making it not an unfair advantage.
What’s the Difference Between an Unfair Advantage and a Unique Value Proposition (UVP)?
These, too, can overlap, but they are different. It helps to differentiate them by who they are intended for.
The audience for a UVP is your customer. In contrast, the audience for an unfair advantage is your competitor.
The job of a UVP is to communicate to your customer why your product is better than the competition. In contrast, the job of an unfair advantage is to communicate to your competitor why they shouldn’t bother trying to copy your product.
Example:
- iPhone UVP: A phone, PDA, and a music player in one.
- iPhone Unfair Advantages: Branding, supply chain relationships (cornered resources), switching costs.
UVPs communicate better products. Unfair Advantages communicate defensible business models.
Sources of Real Unfair Advantage
While many unfair advantages exist, they can neatly be categorized into seven sources. Hamilton Helmer outlines these seven sources of power (unfair advantages) in his groundbreaking book, 7 Powers - The Foundations of Business Strategy.
Let’s walk through them with examples:
1. Counter-Positioning
Counter-positioning involves developing a business model that the incumbent (status quo) cannot copy due to damage to their existing business.
Examples:
- Airbnb versus hotels
- Uber versus taxi companies
- Netflix versus Blockbuster
2. Cornered Resource
A cornered resource provides exclusive access to a valuable asset.
Examples:
- Insider information
- Celebrity endorsements
- Dream team
- SEO ranking
- Trade secrets
- Patents (in some types of business models)
3. Scale Economies (Economies of Scale)
Economies of scale kick in when the unit cost declines as production volume increase.
Examples:
- Netflix
- Kindle (e-books)
4. Network Economies (Network Effects)
Network effects kick in when the value realized by a customer increases with the number of users.
Examples:
- YouTube
5. Switching Costs
Switching costs are the cost (or value loss) incurred by a customer to move to a competitor.
Examples:
- Apple ecosystem lock-in
- Long-term contracts
6. Branding
Branding helps a company command a higher valuation for its products compared to objectively similar competitor offerings.
Examples:
- Apple
- Tiffany
- Fiji water (bottled water with a story)
7. Process Power
Process power comes from the ability to systematically build better products (superior features, lower costs, speed) through an internal process that cannot be easily copied.
Examples:
- Toyota Production System (TPS)
- Continuous Innovation
Most Founders Don't Have an Unfair Advantage at the Outset of Their Idea (and that’s okay)
Consider Mark Zuckerberg.
He wasn't the first to build a social network, and many of his competitors already had a huge head start with millions of users and dollars in funding. That didn't prevent him from building the largest social network on the planet.
While Mark didn't have an unfair advantage on day one, he had an unfair advantage story. He knew his unfair advantage needed to come from network effects. This clarity of focus helped Facebook develop a systematic launch and growth strategy that helped them eventually realize this advantage.
The good news is that you don't need an unfair advantage on Day one, but you should aim to create an unfair advantage strategy.
How to Formulate Your Unfair Advantage Strategy?
Formulating your unfair advantage story is the essence of business strategy. Some unfair advantages can be realizable early in your business model, while others take time to develop.
I’ve mapped the seven sources of unfair advantages by stage to show you when they are typically accessed below:
Here’s how to develop your unfair advantage strategy:
- Go through the list of 7 Powers and identify which could apply to your business model.
- Identify key assets/resources you have or will acquire to develop these unfair advantages.
- Build a strategic narrative timeline. Share it and live it with your core and extended team.
