Identifying critical success factors for startups is one big obsession. Around 4.4 million new small companies were founded only in 2020, but statistics show only 1 out 10 startups end up being successful across all sectors. 

In the best case scenario, a startup can be profitable during the first year, but failure happens easily during the following ones.

We have many examples of consolidated startups, so how can we identify the aspects that lead to success? What are these? Do they remain the same over the years? What differences are there between the offline and the online world?

Today, we define what competitive advantages you should be considering before launching your startup or product. Plus, we analyze the importance of defensibility in order to survive over time. 

Competitive advantages: The differential points of your business

Any business that aims to be profitable needs to define competitive advantages and always keep them in sight. When we talk about competitive advantages, we mean points that are key to a product's success. Of course, the type of product determines these, but in general terms there are some competitive advantages that are shared among digital products. These are some of them:

1. Product value and market fit

Product value is the main reason why users will be consuming your product, while market fit is its fundamental purpose. In many cases, especially in the digital world, product value can be identified as content, but it goes way beyond that depending on the business sector and type of prodcut.

👉 Learn how to determine product-market fit and how to recognize the signs to know if you're there or not. 👈

2. Know-how and team

A talented and unique team is the tool you need to build interesting features, keep an eye on customer’s interests and on the market. We’re not only talking about expertise, skills or talent. Other factors like having a unique point of view and diverse insights are key to developing a product and making it fit into the market. 

3. Speed and momentum

In a context where a minimum viable product can be built in a few days, going as fast as you can is a competitive advantage. It is likely that a team like yours is working on a similar product on the other side of the world, so getting there faster may be the key to success for your product.

Other time factors are equally important, yet not so manageable. Aspects like momentum can give you the push you were looking for. 

4. Capital and funding

It is quite likely that your product needs capital to take off. Having good investors will let you complete the previously mentioned advantages: you will be able to hire your unique team, work faster and develop more and better products. 

5. Personal relationships

Personal relations matter in the digital world too. Growing good relationships can be applied in different directions. On the one hand, you can take care of the relationship between your company and its customers. Being close to them, hearing their needs and opinions may be an advantage for your product.

On the other hand, keeping a good network can also be advantageous for your business. It can build a bridge between your company and new investors, employees or simply good press.

6. Marketing or advertising

What good are all the above if no one hears from you? Generating a buzz around your product is key to success. Capture the attention of your target audience with marketing campaigns, advertising or word of mouth. 

7. Patents and licensing

Patents and licensing may be seen as part of the offline world, but they still are a competitive advantage in some cases. Experts agree that they will become less important, but they are still worth considering. 

Defensibility: A changing but crucial concept 

Defensibility is not a new concept, but it surely has changed so much it needs to be redefined. If defensibility is a series of measures to protect a company from other competitors and circumstances, the concept is as old as commerce. 

Before the digital revolution, examples of defensibility were unique materials, privileged geographic locations, patents, and more. As for today, most of these have vanished - access to all kinds of raw materials has spread, the market economy is global, and so on and so forth. So, does definsibility matter anyways?

The truth is it does, and probably more than ever. Statistics show that enormous amounts of new startups are founded every day and only 10% of them end up being successful. Competitivity is fiercer than ever and that is why considering defensive factors may be the differentiating factor to be successful over time. These are some of the defensive tactics you can consider.

Defensibility is a series of measures to protect a company from other competitors and circumstances. But the concept needs to evolve, since competitivity is fiercer than ever. 

1. Network effects

Network effect is the circumstance where users improve the value of a product by using it, making it more valuable for other users in a continuous way. 

Network effects are a common phenomena in today’s world, since the internet itself is a good example of it. The internet became more and more valuable as users increased their usage - more content was produced, more web pages were created, new and more interesting products were arising, and so on and so forth. People using the internet more and more lead to creating a bigger value, creating a network effect.

But this example is not only limited to huge products like the internet - our lives are completely driven by network effects, not only in the digital world but also in the physical one.

2. Economies of scale

Economies of scale are cost advantages that businesses earn due to larger scales of operations. In simpler words, a business with economies of scale grows more as it gets bigger. By benefiting from the increased size of its operations, costs are reduced and the outcome grows. 

Amazon is a recurrent example of economies of scale, but these apply to other businesses, including the offline world too. For instance, if we take a restaurant as an example, it is logical to think that serving 100 customers is more efficient than serving 10. The same human resources can cover more servings, while access to raw materials gets cheaper when more quantities are acquired. 

Coming up with a way to produce more efficiently and applying economies of scale can ensure profitability, but also stability in the long term and protection against your competitors. 

3. Brand image

Brand image creates a psychological barrier, very difficult to trespass. Building a solid brand contributes to people associating your brand with a need, a concept or a lifestyle. Managing to create a stable brand image ensures success in the long term, reaching even decades of notoriety. Once this is achieved, not only your customers will come to you easily, you will be also scaring competitors off. 

Nevertheless, a brand by itself is not a guarantee for success. Having a sturdy brand image shouldn’t let you neglect product value and innovation. We’ve seen thousands of great brands sink during the last years because of overconfidence. 

Competitive advantages vs Defensibility

It is clear that the most advantages your product gathers, the more likely it will conquer success. According to TechCrunch, both competitive advantages and defensibility contribute to your business success, but the way they do it is dramatically different.

Competitive advantages are a great start, since they will provide a first stage of success and stability. Gathering those will provide a linear growth. But on the other hand, coming up with a way of acquiring defensibility will provide long-term success and stability, and this translates into exponential growth. 

If you’re about to start your own startup or want to come up with a new innovative project, think about including at least one of these defensibility measures. Designing a product that features competitive advantages and defensibility as well is not so easy, but it will guarantee success in the long run. Don’t know where to start? We can help! At Corporate Lab, we’re experts on corporate innovation and corporate venture building. Want to know more? Drop us a line! 👇