In 1588, 130 Spanish ships pointed their bows toward England, intent on invading the country and overthrowing Queen Elizabeth I. But they were unprepared for the battle they instigated. British ships sailed circles around them, forcing a hasty retreat home. In all, the Spanish Armada lost 50 ships in their attempt.
The root cause of the Spanish defeat now seems simple. The British had developed a new kind of ship—an improvement on the "galleon" design that the Spanish had developed 30 years earlier. By lengthening the ship and clearing the deck of cabins, the British warship proved faster and more maneuverable than their Spanish adversaries.
How fast and maneuverable is your strategy?
The answer depends on its design. Does your strategy create resistance or does it cut through the competition like a sleek motorboat?
Just as there is a way to measure the wind and water resistance a boat creates as it speeds toward its goal, it is possible to measure the resistance of your strategy. Great companies begin with a strategy that removes resistance, that disrupts the market, so that competitors just step aside.
Below I provide a way for you to measure the resistance your strategy creates (you can also see my free tool at kaihan.net or check out chapter 18 of my book, Outthink the Competition). But first, let me give you an example of what I mean.
Consider Carbonite (CARB). The company was conceived by Dave Friend and Jeff Flowers in 2005, after Jeff's wife had her laptop stolen and Dave's daughter's computer crashed. They figured there must be an easy way to help people back up their data so that when they lose a computer they don't lose everything. So they launched Carbonite, a backup software service.
Today Carbonite is publically traded, selling over $60 million a year and growing at about 100% per year. It ranked No. 9 on the 2010 Inc. 500 list and was just honored as 2011's "Most Admired Startup" by Boston Business Journal.
I recently got a chance to sit down with Dave and learn about his strategy. What he shared illustrates perfectly what I am talking about here. You design a ship that creates no resistance by making a number of unorthodox strategic choices that your competition, even if smart and well funded, will resist copying.
- Pricing advantage: Carbonite offers one flat price for unlimited storage while competitors, like SugarSync, offer tiers: pay $X per year for 100GB of storage and $Y for 250GB. Dave and Jeff at first thought that they needed to limit the amount of storage their customers upload, or they'd end up attracting cheap customers with huge hard drives. But the seasoned entrepreneurs knew to do their research. They found (a) few people have unusually large amounts of data, (b) what prevents most people from signing up for backup services is that picking a package is complicated, and (c) storage costs are coming down quickly. A flat price—Carbonite charges $59 per year—works financially.
- Process advantage 1: What's stopping competitors like SugarSync from copying this pricing model? The answer is that it costs too much. Most of Carbonite's competitors, Dave explained, rent storage from Amazon and other cloud providers. Carbonite has invested in its own servers. Their initial investment cost is much higher, but their operating costs are lower.
- Process advantage 2: While most competitors upload your data quickly as soon as you are connected, Carbonite takes its time. This means that Carbonite can use a proprietary type of server (less processing capacity and more storage capacity) than is the market standard. This gives the company another layer of cost advantage.
- Promotion advantage: When I interviewed the CEO of WebMD last year, he said his company's key advantage was that they invested early and heavily on building a brand that people trust. Dave has his eyes set on the same goal. When Carbonite sought to build awareness and trust, they asked people, "Who do you trust?" They found many people cited radio talk-show hosts, so they bet their marketing spend dollars on getting well-known radio talk personalities to try Carbonite and, if they liked the service, to promote it.
How long will Carbonite's advantage hold? Success always attracts imitation and I think some of the company's advantages (e.g., branding) may erode quickly. But the more systematic advantages (e.g., process) could last a long time.
What is your score? How long will your advantage hold? Are you going to sail around your competition with a faster, more maneuverable hull?
To score yourself, you can use my new free online tool at kaihan.net (then click on "Calibrate your Competitiveness"). Or simply follow these steps:
1. Look at how your position compares to your competition's.
2. Ask, is it different in a way that customers like? If so, how long will it take the competition to match my positioning?
3. Give yourself a score of 0 if there is no difference, 1 if your competitors can copy within four years, and 2 if they will take five or more years to copy.
4. Repeat steps 1-3 for product, price, place, promotion, processes, physical experience, and people (the 8Ps).
5. Add up your total score. Most companies compete with a score of 0-2. Truly disruptive companies reach 8 or above.
Here's to smooth—and fast—sailing.
[Image: Flickr user Lee Penney