When you’re considering how to get and maintain a competitive advantage, it’s worth thinking about how the big boys do it.
If you look for Coco-Cola Classic’s recipe, you’ll find it’s helpfully published on their website for all to see. Except it’s not really. In addition to carbonated water, sugar, caramel colouring, phosphoric acid (for a tarter taste!) and caffeine is an innocuous sounding ‘natural flavours’. As they say, “the essence of the secret formula of Coca-Cola is its blend of natural flavours.
This is the most protected and secret part of the formula.”
If you’re Coca-Cola and you want to sell your product to the entire World, you’ve got two choices:
Make everything yourself in your own factories and ship bottles of 90% fizzy water huge distances to reach your customers, at huge expense and wastage.
Authorise bottling plants and drinks' vendors to source most of the raw materials themselves (to your specification) and then send them the ‘natural flavours’ in a form that can be added to complete the Coca-Cola taste. This route is cheaper, faster and requires considerably less working capital. It gives Coca-Cola enormous distribution and competitive leverage.
Coca-Cola’s secret sauce is their ‘natural flavours’ recipe, which is fiercely protected. And that’s what makes their business successful. If you’ve ever tasted supermarket own-brand cola, you’ll know why Coke is it.
If you create a successful business, you can expect others to copy it and try to outsmart and out-scale you. Even if you hold patents for your novel technology, you may find your competitors either find a work-around or use it anyway and wait for you to sue. Which you may or may not do. You need your own secret sauce.
At Sendo, our mobile phone business, our secret sauce was the way we customised our phones, with hardware, software, plastics and packaging. And our 48-hour delivery promise. The network operators could place an order and we’d deliver a fully customised phone in 48-hours anywhere in Europe. No-one else was doing anything remotely close to us, and the customisation software that was used in our distribution centre was home grown and secret.
One question an investor will ask you is, “How will you protect your business from the competition?” What they’re really asking is, “What’s your secret sauce?”
And the same question applies when you're thinking about your customers. "What is it that puts clear, blue water between you and your competition?" Not some woolly phrase about putting customers first, but something that is real and tangible and can be explained succinctly in your elevator pitch. Perhaps it's the very nature of you being small and agile, or the highly personal service you provide, or the niche that is your expertise. Or the software solution you've developed, or the process you've invented.
Whether it’s a software algorithm, a distribution method, a recipe, enhanced service, your competitive positioning or a business process, you simply must know what makes you different - and then hide it.
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