Competitive Advantage- Nature or Nurture

I’m a long-time fan of Hamel and Prahalad’s Competing for the Future. They go into great detail about how deep competitive advantage is built over years, by developing and building a company’s core competence. Apple is a great example, Google is another.

As a venture investor, we look for “barriers to entry”, or “sustainable competitive advantage”. But how do young companies develop strong competitive advantage? Even if a company has patents, strong commercial contracts or exclusive arrangements, etc, competitive advantage is a multi-layered onion. Classic strategy dictates that “running fast” isn’t a defensible position either…but that’s an approach that most web companies take (also known as first mover advantage) and the rewards can be great (think YouTube).

What most investors are reluctant to admit is that the companies they invested into were rarely the companies that were successful, e.g. the investment changed to such an extent before exit that the “initial” business is rarely the one that is truly successful.

This is a pattern I’m seeing increasingly with many of our investments- the killer app isn’t evident in the early days. There are indications of what looks like a good investment, but the world moves on and new, vastly more exciting opportunities present themselves (or the opportunity doesn’t materialize and the company goes bust).

It seems to me that successful companies are part nature, part nurture, part luck (like everything in venture).

One thought on “Competitive Advantage- Nature or Nurture

  1. Interesting post. I wonder if sustainable competitive advantage needs to be replaced by something like flexible competitive approach? The good companies might not have the right revenue model or the killer app when they start, but are flexible enough to know when an opportunity presents itself that they can adjust their strategy accordingly. Like it.

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