In my research following the paths of successful innovations, I repeatedly see that the strategy that gets you there is not the strategy that keeps you there. It was Wal-Mart's focus on rural markets that got it to become the largest retailer in the U.S., but it was its economies of scale that enabled it to maintain this advantage. While Dell’s “go direct” strategy pushed it above HP and IBM, it was its efficient, customizable supply chain with which it maintained its top position for so many years.
Typically, fast-growing companies beat their competitors by doing something their competitors choose not to copy, even though they could. Over time, however, competitors grow weary of losing and they get over the cognitive and social barriers that are stopping them from competing. Eventually the competition wakes up to your success and you need to shift your advantage. One of my favorite business school professors, Bruce Greenwald, suggests in his book “Competition Demystified” that there are just three proven ways to sustain your innovation:
1. Achieve customer captivity
2. Build meaningful economies of scale
3. Secure preferential access to resources
Innovative, fast-growing companies know that they probably can’t use these sources right at the beginning of their new business or product. But from the start, they explore how they can put these barriers in place for future advantages. Blink, the young airline I've been covering, seems to be pursuing at least two of these.
First, Blink is pursuing economies of scale by building its fleet and strategically partnering with non-competing, similar companies. The idea is this: every time they carry a group of people from point A to point B and another group from point B to point A, they save money. Instead of having an empty plane fly back to point A, which incurs nearly the same fuel costs and landing fees, they can charge for the return leg.
This “economy of serendipity” is the key to achieving high profitability. The more expansive your network, the more likely you are to generate “economies of serendipity.” Look at it this way. If every time a taxi cab dropped off a passenger it had to drive all the way back to base to get the next pick-up’s address, that cab might lose money. But if that cab can pick up another passenger where it dropped of the first, and then another passenger where it drops off the second, it can rake in profits.
Blink is seeking to create a network – through its own planes and those of similarly minded companies – to share customers and thereby achieve economies of scale.
Second, Blink is working toward achieving customer captivity. Just as Starbucks has achieved valuable customer captivity by training customers to follow a unique “Starbucks” process (you learn, for example, to call non-fat milk “skim” and ask for a “tall latte” rather and that “latte … tall”), Blink is working to train loyal customers in a unique Blink process. They want people to call and say, “I want to get to Paris,” rather than, “I want to fly into Orly.” They want people to enjoy the process of finding the cheapest way to get from their office to a meeting and back.
If Blink achieves these two things – customer captivity and economies of scale – history says they have good chance of surviving any competitor that tries to take them on directly.
Ask yourself what you can do now to start building one or more of the three proven sources of sustainable competitive advantages:
1. How can I achieve a higher level of customer captivity?
2. Who can I partner with to create economies of scale?
3. Where can we control the access to a needed resource or technology?