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Thinking strategically, part two: Core competencies and competitive advantage

Because I don’t like typing things twice, for this second installment on thinking strategically on business, I offer up a great discussion core competencies and competitive advantage from our book, Shoestring Venture: The Startup Bible. It, I think, hits just the right pitchfor entrepreneurs, solopreneurs, and small businesses — in other words, for the rest of us — about these two central principles of business strategy.

If ever there was a “there” in business strategy, the concepts of competencies and competitive advantage are it. In a sense, being in business is like playing poker. You have some information, but not all; some luck is involved, but most of the game is about strategy. You win the game by not losing on a winning hand or, if you don’t have the winning hand, getting the winning hand out of the game. So, without further ado, let’s launch into our little discussion of core competencies and competitive advantage from the book:

In the MBA world, they call “what you do best,” core competencies.

Corporations understand that they succeed by doing what they do best and letting other folks, like suppliers or vendors, do the other stuff.

For instance, most hotel chains do not actually own their hotels. Why? Any moron can own a hotel. The owning part is easy; it doesn’t take tons of talent or business acumen. In fact, it doesn’t even take ounces of talent or business acumen. In the hotel business, the hard part is a.) figuring out the best places to locate hotels; b.) cutting favorable real estate deals; c.) managing the construction of the hotel; and d.) administering and marketing the hotel. Being able to do these things better than everyone else is what makes one hotel chain more successful than others. But owning the hotels . . . no hotel chain is “better” at owning hotels than any other hotel chain. So they often don’t waste their time on the owning part of the hotel business. This frees them up for the business activities that make the big bucks.

The same applies to building the hotel’s Web site. Hotel chains do not build Web sites better than other hotel chains, so they pay someone else to build their Web sites. What hotel chains do well is use their Web sites to find and build a loyal customer base. So they spend their valuable time and money trying to do that better than any other hotel chain. The better a hotel chain is at filling hotels through their Web sites, the more they “beat” their competition. But actually designing, coding, and programming the site? No hotel can “beat” other hotels by designing, coding, or programming their Web site.

When doing what you do best allows you to beat your competition, MBAs like to call that a competitive advantage.

Just because you’re a small business venture on a shoestring budget doesn’t mean that you, too, shouldn’t focus exclusively on your core competencies in order to gain a competitive advantage. In fact, because you’re a small business venture on a shoestring budget you must focus exclusively on your core competencies to gain a competitive advantage! And you must outsource the rest! You have neither the time nor money to waste performing activities that others can do just as well as you can at a fraction of the cost.

If you don’t want to join the Start-Up Failure Club—and nine out of ten start-ups join this club in relatively short order—you need to focus on the things that you do better than anyone else. These core competencies, if you do them well, will give you a competitive advantage over all other businesses . . . including the big guns that don’t even know, or care, that you exist. To stay focused, you, more than any other kind of business, need to find vendors and suppliers to do all the other stuff.

You may be an off-the-charts salesperson or networker. You may be a megawatt idea generator. Or you’re the best engineer this side of the Mississippi. Or an inspiring leader. Or someone loaded with consumer insight.

The reality is this: the more time you spend doing tasks related to what you do best, the more competitive your business will be and the more likely your venture will succeed. The more time you spend doing tasks that you’re not good at, like bookkeeping, HTML, or word processing, the less competitive your business will be and the less likely your venture will take off. It’s a simple principle that doesn’t take a $60,000 MBA degree to figure out.

These twin concepts of core competencies and competitive advantage will form the backbone of every part of our discussion of strategy. And we get started, in just a few days, with the big picture: strategy wheels.

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