One of the toughest and yet most important questions you will be asked by savvy potential startup investors is "What is your sustainable competitive advantage?" Yet many entrepreneurs, maybe in their passion for their new product, gloss over this one, or even announce that they have no competition.
Think about each of the three words for the full meaning of the phrase. "Sustainable" means over the longer term -- not just today. First to market, for example, is not sustainable. It may buy you a few months, but if you show traction, competitors with deep pockets will catch up and bypass you quickly, jeopardizing all your investments.
"Competitive" should be taken broadly to include alternative ways that people might solve the problem you are addressing. Don't define your scope so narrowly that you would not consider airplanes to be competitive with your new train, or you will suffer their fate. The competition is transportation, not slow machines on tracks.
"Advantage" needs to be measurable and significant. Many entrepreneurs lead with fuzzy terms like "improved usability" and "lower cost." Experienced business people realize that unless you are dealing with a commodity, or customers are extremely unhappy, they won't switch to a new alternative unless the savings are well above 20%.
So what are the business elements that investors look for to conclude that you may indeed have a sustainable competitive advantage? Here are the key ones:
Overall, a sustainable competitive advantage requires value-creating products, processes, and services that cannot be matched by competitors now, and plan content to maintain that position as you scale. Of course all of this assumes you are in a big growing market, with adequate resources, marketing, and great people to deliver. No one said it would be easy!