I recently saw an interview with billionaire investor Warren Buffett. Buffett was asked about which qualities of a company he looks for when assessing an investment opportunity. Without hesitation he answered, “an enduring competitive advantage.”
This led me to thinking about what this means for my own business and for the businesses of my clients. We are all paying attention to standard performance measures in order to assess the health of our firm at any given time, but a competitive advantage can be the key to a law firm’s long-term success.
What is a competitive advantage?
It may seem self-explanatory, but in order to use your competitive advantage to its fullest potential, it’s important to clearly define what that advantage is.
Basically, there are two types of competitive advantage:
Comparative Advantage – In which your firm is able to provide a service at a lower cost than your competitors. This may not mean that you sell those services at a lower price, but it does allow you to either have a larger margin than your competitors or, should you charge less, may attract more clients to your firm.
Differential Advantage – A differential advantage is when you are providing a product or service which is different than the others, and therefore seen as better.
Keeping an eye on your operational effectiveness, or watching the bottom line, keeps you in business but honing in on your competitive advantage is a strategy for the long-term.
Unfortunately, unlike the “numbers” which give you a picture of the health of your company, competitive advantage cannot be boiled down to a ratio or financial formula. Determining your advantage requires a hard look at your company, your competitors, the market situation and a little fortune-telling as to what the future may hold for your industry.
What does competitive advantage look like?
In her book, Creating Competitive Advantage, author Jaynie Smith writes: “In my research with middle-market companies, I found only two CEOs out of 1,000 who could clearly name their companies’ competitive advantages. The other 99.8 percent could offer only vague, imprecise generalities.”
However, we can find many examples of how companies who clearly defined their competitive advantage were able to break away from the pack. Does your competitive advantage look like any of these?
Coca-Cola: The Coca-Cola Company owns four of the world’s five most popular non-alcoholic, carbonated beverage brands. Think about it. All of the Coke, Diet Coke, Sprite and Fanta consumed by the whole world, is owned by one company. Pepsi may be a rival however, until it topples a few of Cokes top-sellers, not just one, Coca Cola will continue to sit at the top and sustain its dominance. Advantage: Brand Popularity
Costco: The warehouse superstore changed the way many Americans shop by creating a competitive advantage that has been untouchable by many. By working with high volumes of merchandise, which allow for cost efficiencies, and mastering the rapid distribution and turnover of that merchandise, Costco has sustained its advantage over smaller competitors such as Sam’s Club. Advantage: High Volume (handled efficiently)
Apple: No talk about competitive advantage can ignore the advantage in innovation and design enjoyed by Apple. Apple’s non-wavering focus on design and innovation of the consumer experience has allowed it to weather the volatile word of high-tech. Advantage: Innovation
Wal-Mart: Everyone knows this story. Low price equals competitive advantage. Say what you will about their approach but this is the most capitalized company in the world. Offering the lowest price has allowed Wal-Mart to serve its target market better than any other competitor. Advantage: Low Price
General Electric: You might say that General Electric is living off of its past, and in a sense that is true. This company is one of the most powerful in the world because of the patents that it holds. It owns something everyone else wants or needs. Advantage: Strategic Assets
There are other ways to gain an advantage over competitors. First-mover advantage, meaning you hit the market before your competitors are able to. Having superior customer support worked for many years for the Gateway computer company. FedEx used speed or time to gain an advantage in the package shipping industry. They simply could get your package there before anyone else.
How do I create competitive advantage?
Companies with competitive advantages do one of two things. These companies are either doing something different than the competition or they are doing the same things, but in different ways. If your company is providing the same product or service, in the same way as all the others, it’s not likely you will be able to bring your firm to the next level. There are strategies to create an advantage however.
Do you have brand popularity? Do customers or clients know who you are in your area? Having an online presence is crucial in these times in order to be seen by the whole community. For some younger people, online may be the only place they search for legal services.
Even if you are the leader in your area, if you are receiving the majority of the potential clients over other firms, are you able to sustain by handling the volume with efficiency? Ensuring your processes are effective in both time and money can create an advantage over inefficient firms.
You can also create a competitive advantage by being ready for new, hot topics in your target areas of practice. If you are ready to hit the ground running on new types of cases you can take advantage of a first-mover strategy.
A Law Firm Example – Sokolove Law
Sokolove Law is a great example of a law firm which transformed itself from a regional marketer of legal services to the largest in the country. By finding and using their competitive advantages of innovation and efficiently handling high-volume, Sokolove Law has grown into a firm which has generated over $700 million in attorney fees over the past five years.
Sokolove Law set up a model which allowed them to maximize the case generation and referral process and provides a service needed and desired by almost 400 co-counsel firms.
In order to become so successful, the firm has spent as much as $12 million annually on Internet marketing. There is a team of 20 just to handle all of the digital and online marketing for the firm! With their focus on marketing and efficiency in their target areas, their team is almost guaranteed to win the client.
If you have not yet clearly identified your competitive advantage, it may be time to do so. A competitive advantage can create shield around your business which prevents competitors from breaking in and allows your firm to experience extraordinary growth and increased profits.
There are many ways to create a competitive advantage, through branding, efficiency and pricing. A careful analysis of your firm, your market and future trends can help you to hone in on your advantage and focus your business on the most important, and productive, areas.
Are you ready to lead the pack in providing 21st century of legal services your clients? Contact Black Fin today.