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April 23, 2009

Can you compete? (1 of 3)

Before you can sell, you need to know what you are selling. Before you can get that great job - you need to be able to pitch a compelling case for yourself. In fact, identifying and commercializing your competitive advantages is one of the areas where consultants regularly fail. (Sadly)

Over the next week we will be running three posts on this.

1) This one - what is competitive advantage
2) A follow up - Identifying what you already have
3) And a closer - Taking it to market

What is competitive advantage?

This is what Warren Buffet refers to as a "moat". A barrier to entry that protects the castle from the market invaders. And as he seems to have done okay for himself it seemed like a wise way to start this discussion.

It is particularly important for consultants. Clients want us to be commodities, and often they try to force us to compete on price. Nothing wrong with that, I would do it if I were them.

But for us it means getting less than fair pay for our work. It means shrinking profits, reduced standards of living and limitations on the sorts of people we can draw into the consulting profession.

Competitive advantage for consultants comes in 5 separate streams as I see it.

1. Intellectual Property

The king of competitive advantage. The one that turns your consultancy from a job for you and the people you hire, to a sale-able product. Something that can be sold on once you decide to hang up your shingles.

I worked with a guy called John Moubray once. He developed an engineering consultancy that was based on one book, 6 or 7 presentations, some calculations and very powerful diagrams and troubleshooting tools.

His IP meant he could license his products to others, he could create a moat around his services that nobody could cross legally - unless they developed a suite of IP products that were equally as powerful as his were.

And when he passed on it meant that his life's work was able to be sold by his widow.

IP often gets used to speak about software, but it is far broader and a whole range of fee generating products.

Coca-Cola has very powerful and valuable IP in its original recipe. So too does Kentucky Fried Chicken and Google. Salesforce.com doesn't, and this can be seen in the number of copycat companies that have entered the SaaS environment following their lead.

If you have IP that is both scarce and of value then you get to set market prices, you get to draw in clients instead of hunting for them, and you get to create space between yourself and your clients.

2. Brand

I don't want people in engineering to say "Get me a reliability consultant". I want them to say "Get me Daryl Mather". My brand is my competitive advantage.

Your brand needs to stand for value, integrity, quick results, different and rapid approaches and whatever makes it work for your market sectors. Building your brand is a challenge, and one that you need to be dedicating at least 20% of your time each week to. (Regardless of whether it is a personal or company brand)

But be careful... personal brands need you to be at the helm at all times. Business brands enable you to take holidays at least.

Your brand is probably the second most powerful IP area. It drives repeat work, drives referrals, and will drive people to look for you - rather than you looking for them.

Sources of brand creation include your LinkedIn profile, articles and books that you write (including self published books), speeches that you give, You Tube videos you publish and a whole range of other items. Brand marketing tools like this create the likelihood that you will be at the top of their mind when they have problems you can help with.

3. Size

Whether it is because you are small and nimble or large and resource loaded, your size is a competitive advantage that you must be able to market fully and give examples of how it will add value to this engagement.

I have only recently joined a large organization. The difference is stark. I have access to capital, resources, marketing prowess and funds, and a range of specialists that I could never get my hands on as part of a smaller operation.

But... when I was part of a smaller operation we could move far quicker. We were far more flexible, our overheads were lower and we could change strategic direction in a heartbeat of the market told us to.

So it is up to you to work out what your size means to the market, and how that gives you advantages and in what areas.

Size doesn't only mean physical size however. It can also mean market size. Salesforce.com dominates CRM through its SaaS product. But it is now competing with SAP< Microsoft and Oracle.

And surprisingly it remains firmly in the lead. Why? Because it dominated the space before they entered, and it has been able to use that early dominance to maintain and increase its share of a growing market.

I used to work with a firm called AMT-Sybex Ltd in the UK. They were a relatively small IT firm specializing in what they called essential industries. Things like water, gas, electricity, rail infrastructure and so on.

And despite competing with everyone from SAP to IBM to Accenture, they were able to maintain their sizable market share in those industries. Why? Industry knowledge, industry relationships, long term results, and the fact that their track record had proved them as a safe pair of hands.

4. Cost...

The frightening one. As I have said here many times before the danger of competing on price is that you just might win.

But if you can produce from a low cost base, then you don't need to sacrifice profitability in order to get increased marketshare.

For example, Salesforce.com (again) has a subscription model. They have large volumes of companies and SME type organizations who pay low fees for use of their products. (Our license cost less than $600 for five of us for a year.)

KPMG and the rest of the big four (are there four now?) consultancies have all maximized their pull on low wage economies to get these advantages. Engineering drawings, coding, design work and many other analytical and repetitive types of work have been outsourced to low wage countries. meaning they can continue to offer their products and services at vastly increased profits or reduced costs for the clients.

Reducing costs can also relate to the way you structure your own business. Taking full advantage of online software applications, labor structures and contractual relationships, as well as savvy taxation planning and management means vastly reduced overheads for your business.

Something worth spending time on to get to a price (or profit) advantage.

5. Network

I do not think this is the least important. Maybe the other way around actually. My network is a continual source of information, leads and resources for me to draw from.

It is the network that allows AMT-Sybex Ltd, mentioned earlier, to continue to compete in a small market space against giants in the industry. It is your network that can make a solo consultant like you, able to sell up the hierarchy and chain as well as any large consultancy.

If you have a strong network. Filled with commercial decision makers and influencers, all of whom have trust in your character and abilities, then you get the work before anybody else every hears about it.

Next post we will start to get into issues around how you can maximize the advantages that you already have! Once you get moving it gets easier...

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