Startups are constantly searching for unique advantages to stay in front of competition and ensure long term success. Entrepreneurs often don't realize that some of the best strategic advantages for startups may exist within the market leader's greatest advantage.
This might feel like sticking your head in the lion's mouth. But the key is to bring a judo mindset, where you take a larger opponent's momentum and use it to your advantage by flipping it on its head.
Specifically, you want to figure out the biggest profit pools of your competitors. Given that profits are revenue minus cost, the next step is to figure out what levers within revenue like pricing or drivers of cost like economies of scale you can play with and innovate to be wildly disruptive and get sustainable advantages. Here are a few examples of how to do it.
Find complex pricing and make it simple.
Unnecessarily complex or opaque pricing models are often a great place to look for opportunity. Simple pricing models are the core of Southwest Airlines success. But they took it further with a great 'bags fly free' strategy, which has helped it grow and position itself favorably versus the large airlines who have complex baggage pricing that make them a lot of money in the near term but likely whittling away long term consumer goodwill.
Free consumers from penalties and late fees.
Much has been made of Netflix soaring and putting Blockbuster out of business. But remember that part of the origin story of Netflix was the founder and CEO, Reed Hastings, being upset about a $40 late fee he received from Blockbuster video. Not only was this an annoying consumer experience, it was a large source of profits Blockbuster depended on. He innovated a simple, flat fee subscription model with 'all you can eat' videos a core part of the Netflix value proposition. It was highly appealing to consumers and boxed their competitors into a rock and hard place, where their only response was to helplessly watch as their business went south.
Find a big area of efficiency and throw a monkey wrench.
Most big companies worship at the alter of supply chain efficiency. They love products they can make over and over again the same way, because it enables their factories to run 24/7 and makes distribution simple. The key here is to find a product that is slightly more customization consumers want that is also just disruptive enough to efficiency that the market leader is loath to follow.
Royal Canin is a great example with their breed specific diets for their high end, vet recommended pet food. Consumers love the ability to buy pet food with more personalized nutrition for their specific breed of dog. But the complexity of having to make different diets for different breeds is a huge challenge for other pet food manufacturers.
Put a spotlight on industry secrets.
Just about every industry has part of it that they'd like to divert attention from. It's not necessarily sinister, but as every business strives to provide affordable products to consumers unintended consequences emerge.
Consider up and coming brands like Vital Farms, Teton Waters Ranch and Maple Hill Creamery, which make eggs, beef and dairy respectively all via a more humane, sustainable supply chain. Vital Farms chickens get over 100 square feet of pasture to roam around in versus the industry norm of one square foot. Teton Waters Ranch and Maple Hill Creamery are all 100% grass fed and pasture raised, versus merely feeding grass pellets in confining feedlots. They aren't just 'putting lipstick on a pig', but rather raising awareness on industry secrets that go against the grain of millennial consumers and making real investments into supply chains of the future consumers will be proud to be associated with.