Monday 21 March 2016
What's your competitive advantage?
Monday 21 March 2016
How to build a business strategy that separates you from the pack
One thing about financial services is clear: our industry is changing, and it's changing fast.
Increased client expectations, additional professional educational requirements and changing regulations make doing business more complicated than ever. And, if that's not enough, there's also the digital disruption that online apps and tools such as robo-advisers, FinTech start-ups and D.I.Y. accounting software are bringing to the traditional work of financial advisers, accountants and other financial services professionals.
Against this backdrop, growing your business often means refining your business strategy so that potential clients see the value you can bring that your competitors simply can't.
So, if you need help defining your competitive advantage, read on.
What does competitive advantage mean for financial services professionals?
As long ago as 1985, business strategist Michael Porter introduced the concept of 'competitive advantage' in his book of the same name, as the decisive factor in why people chose one product or service over another.
"You win either by being cheaper or by being different (which means being perceived by the customer as better or more relevant). There are no other ways," he argued.
Over thirty years later, that same concept is even more appropriate in today's ultra-competitive financial services environment, says Sue-Ella Prodonovich, Principal of Prodonovich Advisory. But it's also more complicated. That's because any competitive advantage you'll hold is usually bound up in the people delivering the service, as well the clients you're servicing.
Competitive advantage comes through focusing on defining a set of pain points and then demonstrating how you solve them better than anyone else.
"If I'm buying a can of soft drink I don't care who made it or who puts it in the machine before I buy it," she says. "But if you're selling a service, especially a premium-priced one, the people involved are everything," she explains.
For that reason, competitive advantage often starts with the knowledge and expertise of your team. And that, in turn, means staying on top of the latest industry developments by reading widely and attending the most important conferences. It can also mean using mentors who've done it before, to help you learn exactly what you need to know.
Using a niche-based strategy
Often, however, competitive advantage comes through understanding another industry - or industries - just as well as your own.
As Sue-Ella points out, increasingly successful service-based businesses are the ones that own a particular niche. And as the world becomes more complex some of those niches are becoming very concentrated indeed. "There's a firm in the US that specialises in doing all the legal work for businesses in the pest control industry. And from what I read it's acquiring an average four new clients a week," she says.
Sue-Ella says there are many ways that financial services businesses can similarly gain competitive advantage by focusing on a particular niche. Obvious ones include targeting a particular industry, geographic area or size of business, such as SMEs.
But there are other ways.
Some successful firms have gained their competitive advantage by focusing on business structures (eg trusts or publicly listed companies), types of businesses that identify with each other (eg family-owned businesses or by a personal or business life cycle).
"Basically, you can specialise wherever there's a common set of characteristics that people identify with," Sue-Ella says. Alternatively, she says, your competitive advantage can be bound up in the level of service you provide or the quality of what you're delivering. Whatever it is, it needs to be something clients value.
Why competitive advantage always starts with the client
Basically, competitive advantage comes through focusing on defining a set of pain points that are common to the clients you hope to service and then demonstrating how you solve them better than anyone else.
This focus on the client and their needs is also a theme that's been taken up by Sean Collins, Partner at Encite Partners. He says that, when most businesses try and define their business strategy they almost invariably look inwards and start with 'why' – or what their own ambitions are. However, establishing competitive advantage means starting with 'who' or the audience that they serve.
"If you're really trying to establish your competitive advantage you need to look at who it is you're trying to attract. Then you can speak directly to them, showing what key problems of theirs you fix and how you do it differently. In other words, while there's a 'why, 'what' and 'how', it's the 'who' that sits over all of them."
If you're really trying to establish your competitive advantage you need to look at who it is you're trying to attract.
Competing on price as a strategy
As Porter points out though, there is always the option of having your competitive advantage based on price.
There's not necessarily anything wrong with that, especially if you're looking for volume of work. But reducing price without reducing long-term profit means cutting costs. That, in turn, usually means outsourcing or automating processes, where possible.
You will also need to reach the largest audience you can.
And the good news on that front, is that while digital disruption may be eating away at the value proposition of financial services professionals, the flipside is that it has made reaching your potential audience much easier too.
Embracing digital disruption
After all, in the digital age it's not hard to target the people in your niche. For starters, your website can become a marketing tool in its own right, especially if you replenish it with fresh content and use Search Engine Optimisation (SEO) to get your message in front of people.
You can also engage directly with your audience via social media and show off your expertise through content marketing techniques, such as blogging and email newsletters. And, perhaps best of all, you can use the rich data available through tools such as Google Analytics or Hootsuite and other tools to continually refine what you're doing to make sure that your message resonates with the people you want to reach.
It all comes back to value
When you take this path, you're likely to start differentiating yourself from your competitors, showing off your expertise through real life examples and putting your competitive advantage out there for all to see.
After all, when it comes down to it, your competitive advantage is really about the value you bring to your clients and potential clients.
As Sue-Ella explains, "For a long time, businesses were constantly told they needed a unique value proposition. "But guess what? It doesn't have to be unique. It just has to be valuable."