Anything that is worth copying will be copied, so how do you establish an advantage? By building something that cannot easily be copied or bought.
New business ventures often face the challenge of how to be truly differentiated. In his book Running Lean, Ash Maurya offers a new take on differentiation by introducing the concept of unfair advantage. He quotes JasonCohen:
A real unfair advantage is one that cannot easily be copied or bought.
The leadership team at Avondale has been discussing a potential new venture around private equity (PE) investing. We want to help investors dissatisfied with the traditional private equity model link up with businesses that want to grow but require capital and management transformation.
We are in the home stretch, with only a few minutes left! We must answer our final question: What is our unfair advantage?
Examples of Unfair Advantages:
As Jason Cohen points out, unfair advantage can come from a number of sources, including:
Inside information (not the illegal kind):
In-depth knowledge or skills that are critical to the problem domain. Basically, this means being well positioned to understand a problem, create a solution, and continue to innovate faster than others.
A single-minded, uncompromising obsession with One Thing:
An example of this is Google's focus on developing the best search engine. For this to be an unfair advantage, you must "refuse to lose" on a difficult-to-achieve capability.
Professional services providers often rely on experience that allows them to serve as a leading authority in their service domain.
This is the network of customers and partners who make up the ecosystem of your users. Facebook, Apple and the Android ecosystem all rely on their communities to add value -and an unfair advantage--to their products.
Other unfair advantages include a dream team, exclusive access to a channel/customers, the right expert endorsements, or a leading reputation for customer service.
Lean Business Model: Unfair Advantage
So what is the unfair advantage we seek in serving investors who are dissatisfied with the traditional private equity model? We see three advantages that may be hard to replicate:
Avondale managing directors and VPs collectively have decades of experience partnering with management teams to build and grow businesses. If we can bring businesses that want to grow but require capital and management transformation to our investors, we will be uniquely positioned to support them.
We are unconstrained by the traditional PE fund structure. Therefore, we can better align ourselves to investors' goals without pressure to make or wind down investments on a particular time scale.
Our cost structure is such that we will only make a profit when our investors do. Compared to the traditional PE business model, this is a very risky choice for us to make. However, our incentives, both in finding good acquisitions and profitably growing the heck out of them, are highly aligned with our investors, which will enable us to form very tight partnerships.
We think these advantages add up to a unique value proposition that will create an unfair advantage with our target investors. If we execute well, we should have no shortage of willing investors and value-creating deals.
The 20-Minute Business Model Experience
Whew! Having articulated our business model in 20 minutes, we can now look back on the experience. Overall, we have found this approach very valuable. With 1-2 hours of effort, we can put forth two or three business model alternatives that can spark a robust debate amongst our management team. We have also brought these models to potential investors and operating partners to gain their feedback and gauge their interest. In the last few weeks we have already iterated our model and how we articulate it several times as a result of feedback from our potential customers.
When we consider new business ideas in the future, we will definitely use this lean business model approach again to quickly iterate our plan and get to something that works.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark