When I ask an entrepreneur what their competitive advantage is, most point to their product and say it’s better. Of course, they spend ten minutes citing anecdotal stories to “prove” it.

My definition of a competitive advantage is that it increases revenue by 30% over the competition or is a decrease in cost by 30%.

Here are five sources of competitive advantage:
– Channel access
– Recurring revenue
– Platform based solution instead of singular products.
– Network effects in action — the value of the product increases with the number of users
– Virality — users invite other users — it’s not the same as network effects

These advantages give your business the ability to scale. Scale comes from revenue increasing faster than cost.

In raising funding, competitive advantages can make the difference in closing an investor. The key is to quantify the effects of your advantage in dollars. If you just say you have it then it will convince no one. You must demonstrate with numbers.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.