Unfair Advantage

Repost from Startup CFO Mark MacLeod

Unfair

Not all VCs are created equal. The top 5 – 10% of the industry enjoys the bulk of the industry’s returns.
The same imbalances exist on the startup side. Be it through a great team, technology, partnership, etc the best startups have one or more aspects to their story that gives them an unfair advantage over the competition. This is why market share is so skewed in each technology market segment. The. Top 2 or 3 players control the market. Nobody else matters.

When VCs are looking at a potential investment they think a lot about unfair advantage: if they invest can this startup be in the top 3 in its market? Can the VC fund help get them there?

Forrester’s Jeremiah Owyang posted on VC value add last week. Value add is how VCs look to generate unfair advantage. If you have a great new web app and Sequoia backs you, well it’s a lot easier to get on Google’s radar screen.

The entire Silicon Valley is built around the concept of unfair advantage. The top VCs get the best deals. Even before a deal gets to them thePaypal mafia vets these deals and gives them their 1st funding.

This is all good, but I find entrepreneurs don’t spend enough time figuring out how their startup can generate an unfair advantage.

Getting Sequoia as an investor can’t be your strategy. You won’t get them unless you have such an advantage already.

What does it mean to be unfair? 

Adjective

1. Not fair; not conforming to approved standards, as of justice, honesty, or ethics: an unfair law; an unfair wage policy.

 

2. disproportionate; undue; beyond what is proper or fitting: an unfair share.

 

It’s all about getting more. A “disproportionate” share of the market and the rewards.

If you really focus just where you have an unfair advantage you’ll end up with a much clearer + smaller problem you’re trying to solve. This can be very advantageous for you:

- You will be much closer to the problem

- You will know who your users are and can engage them

- You can get to market quicker + spend less money

- You will grow faster

Facebook, as an example, started out just serving Harvard students. Now, it’s true they likely did not sit down in the dorm for a strategy session on unfair advantage. They started with Harvard because they were there already (which by the way gave them an advantage – they literally knew their users). They also didn’t have the capital to take on a bigger market, which may have helped them.

Sometimes it’s good to be broke…

Not having a bunch of funny money (aka – VC) lying around forces extreme focus on startups. I find startups that were subjected to such focus are almost always better than their funded peers.

Now starvation does not equal unfair advantage and my post is about this advantage. My point is that extreme focus, brought on by lack of resources or deep strategic planning or both, will often help you figure out where and how you can generate an unfair advantage in your market.

It’s all about finding your best niche + growing one niche at a time. So, as Guy would say: niche thyself. Start where you have an obscenely unfair advantage. Capture it. And grow from there. If you are expanding after capturing unfair advantage in one segment, its easier to pick your next segment because your market position will create more opportunity for unfair advantage.

Who says life is fair?