During the early stages, you’ll want to come up with a short description of your idea that you could share with anyone (and get even more feedback). This can ultimately become your “elevator pitch,” a succinct and memorable recitation of what makes you special, which ideally resonates with the heart and the mind of your listener.
For the unfamiliar, the concept is simple: If you happen to find yourself on an elevator with an investor or customer, you can communicate what you do in the short time (20 to 60 seconds) it takes to ride from the ground floor to your destination.
“While the elevator scenario is a bit absurd, there’s no question that chance conversations can result in business opportunities,” says Inc.com columnist Geoffrey James, author of Business Without the Bullsh*t, a book about essential business skills. “The CEO of one of the largest credit card processors in the United States once told me how he sold the idea for his new business to an investor whom he met at a wedding.”
James offers the following advice on what your “elevator pitch” should contain: A carefully crafted sentence (that’s just one sentence, folks) that describes who you are and what you do. If your listener is interested, then proceed to explain why you and your startup are unique and different from the competition. Reveal one or two facts that prove your uniqueness.
Most people, by the way, confuse elevator pitches with sales pitches, but they’re completely different. “A sales pitch is a formal presentation,” he says. “An elevator pitch is a segue that takes place within a casual conversation.” Most typically, you use an elevator pitch when you run into a potential customer or investor at a conference, trade show, or social event.
“If you don’t have a competitive advantage, don’t compete.”
JACK WELCH, former chairman and CEO of General Electric
It’s also wise to scope out the competition while you’re still forming your idea. (And here’s where you’ll likely discover that you’re not the only person with this fabulous concept.) This is especially important if you want to tap into a crowded marketplace, where there are plenty of customers and many players—or a few dominant ones—willing to serve them.
A competitive advantage, by definition, is that unique edge that allows your business to attract more customers or achieve greater sales than rivals. In essence, it’s what makes your business, your business. And it can mean the difference between being an also-ran and leading the pack.
Your competitive advantage can come in many forms, including:
Your prices
Distinct or high-quality products
Your distribution network
Customer service
Your own personal skill set, experience, or industry knowledge
Strategic relationships or partnerships
“In business, you have only two ways of surviving: Either your product is better than your competitors’, or it’s cheaper. There’s simply no other foundation on which to build a successful business. None. Better or cheaper, take your pick.”
JIM KOCH, founder of Boston Beer Co., which now has a market cap of $1.7 billion
One way to identify your competitive advantage is to take a look at the early feedback that you’ve obtained from outsiders or from your target audience. See if any patterns, trends, or commonalities emerge. Consider those themes to be potential “value propositions” as you continue to develop your idea.
While competitive advantage can be cut-and-dry for some entrepreneurs, others find it tricky to put their finger on. Some companies, in fact, take years to identify what truly makes them stand out. We recommend identifying your competitive advantage as soon as possible, so you nurture that advantage and effectively use it in marketing.
Famed Harvard economist Michael E. Porter wrote the landmark book Competitive Strategy in 1980, offering the “five forces” model to determine your unique advantage. While much has changed since 1980, Porter’s analytical tools are still useful for anyone pursuing a new product or service. His view is that these five forces shape every industry, and can help you determine your strengths and weaknesses:
1.Threat of new entrants. How easily could new competitors enter your space? Do others face significant barriers, such as large capital requirements or government regulation?
2.Threat of substitute products or services. How readily could customers bypass you with other options? If you make aluminum windows, for instance, you need to worry about makers of vinyl windows.
3.Bargaining power of customers. How much leeway do you have, in terms of pricing? If your customers are a lot more powerful than you, they may beat you down on price or force you to provide free services.
4.Bargaining power of suppliers. How much relative power do suppliers have to set prices and conditions for doing business? If you are dependent on specialty suppliers or one or two dominant vendors, you will have to pay whatever they ask.
5.Intensity of competitive rivalry. How many powerful competitors operate in your space? Competition can be civil and subdued, or it can be vicious and warlike.
In a column for Inc., Porter says entrepreneurs can follow three basic strategies when it comes to achieving a competitive advantage and creating profits.
1.You can have consistently lower costs than your rivals. “As long as your product maintains an acceptable quality level, that will lead to higher margins,” he says.
2.You can differentiate your product or service from your competitors. “That allows you to command a premium price,” he says. “And provided you keep your costs under control, the premium price will translate into a superior return.”
3.You can position yourself in terms of scope. “Some companies seek advantage in what might be called a broad scope: They serve more or less all types of customers in an industry,” he says. By contrast, “companies with a narrow scope . . . dedicate all their efforts to one small niche or market segment.” In cars, for example, Toyota is a broad, low-cost competitor, while BMW and Mercedes-Benz target the narrower premium segment.
The worst error, by far, is failing to choose any of these—price, differentiation, or scope—and “therefore not have any advantage at all,” he says. “That is what I call ‘stuck in the middle.’”