Investopedia defines a competitive advantage in business as “factors that allow a company to produce goods or services better or more cheaply than its rivals.” While this is an accurate definition, many SaaS companies looking to create sustainable competitive advantages find themselves up against a number of obstacles.
For starters, trends come and go, but the need for predictable and constant revenue remains. Another obstacle is that with technology growing by leaps and bounds on a daily, if not hourly, basis, startups can pop up and take over the market practically overnight without warning. How can one compete, stay afloat, and not just survive but thrive?
Author and business strategist Michael Porter defined several distinct competitive advantage types in his 1985 book, “Competitive Advantage: Creating and Sustaining Superior Performance.” The four most important are Cost Leadership, Differentiation Leadership, Best Cost Focus, and Differentiation Focus.
A cost leadership competitive advantage involves having the lowest price point for your product or service. To make this sustainable, the business must find a way to have the lowest costs possible for marketing, customer acquisition, and product distribution.
Just like it sounds, the competitive advantage of differentiation is centered on a product or service having unique characteristics that consumers want. This requires adding elements that may not yet exist on the market, and/or bundling features into a single product to provide something that customers can’t get elsewhere.
The best cost focus competitive advantage is centered on delivering the maximum value for the lowest possible price in a niche market. While competitors may in fact be cheaper, the best cost focus strategy is not about being the least expensive – it’s more about lowering the cost as much as you can and giving the customer more value to make up for the fact it might be more expensive than the competition. With this strategy, your customer should be able to answer why you’re more expensive and want to buy from you anyway.
Differentiation focus is an evolution of the more broad differentiation leadership competitive advantage. The goal is to ensure your offering is unique compared with your competitors, and this may mean adapting your product or making it even better as new products/services come onto the market.
Perhaps the better way to approach this is to get more specific and ask yourself – what is a competitive advantage that will work for our unique SaaS company? You should begin by thinking about what products/services are already available to consumers. Then, take it from there with the following questions:
By considering the current market as well as the potential products that could come out, you have a better chance of future-proofing your company.
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