True Competitive Advantage Comes From How Well You Execute, Not What You Know

1024 576 David DeWolf

More information is at more people’s fingertips than at any time throughout human history. In this brave new world, almost 5 billion people are regular internet users. It’s hard, if not impossible, for a company to truly differentiate based on knowledge in this environment.

This is especially true when what we “know” to be true today can be turned on its head in a few years, or even months. Increasingly, business growth in the future will be fueled not by what your team members know but by how well they execute.

Here are a few reasons why those companies whose leaders pay careful, prescriptive attention to how their team members and company act (and how their customers react) stand to outlast those companies who are looking to differentiate simply on knowledge, expertise, or even intellectual property. 

The Future Favors the Nimble 

In 2004, at its height, Blockbuster had a market value of $5 billion and revenues of $5.9 billion. Its stock price hit $19/share in January 2004 when, for comparison’s sake, a share of Netflix would have cost you $5.50/share. By the end of 2004, NFLX’s share price would crater almost 70% to $1.76/share. Their market cap decreased more than 40% that year, down from $1.12 billion in 2003 to $650 million. You can imagine just how merry the Blockbuster Christmas party must’ve been in December 2004.

We all know how this played out, but bear with me. Be kind. Rewind. To January 1, 2005. Which company would you have bet on? Most likely the company that was already a household name. The one that had become a staple of weekend nights for many American families. Nobody was talking about “Making it a Netflix night” in 2005.

So how did we end up here, where Netflix is, as of this writing, the 33rd most valuable company in the world? In a 2019 CNBC interview, Netflix Co-Founder Marc Randolph credited Netflix’s agility for their long-term success, saying, “I think Netflix really has never suffered from the complacency syndrome, and I believe that’s probably still true today. I think one of the things which is one of the great competitive advantages for Netflix is in fact that it still sees itself as a small company, as a start-up that has to stay nimble, that has to push decision-making down.”

PS – if you have a technical bent, the “How We Build Code at Netflix” post from the Netflix Technology Blog is an interesting look at the development process they follow to enable rapid innovation. It is a great encapsulation of Netflix’s commitment to being nimble. 

The Future Favors the Customer-Centric 

How you treat your customers matters. Greatly. When Blockbuster was flying high in 2000, 16% of its annual revenue was derived from late fees. That’s right — they racked up a cool $800 million in one year from delayed returns of Billy Madison and Titanic. Not exactly the kind of policy that is going to engender strong brand loyalty when a competitor with a similar or better offering comes along.

While those late fees helped stuff the balance sheet nicely, they completely disregarded that they were irksome, at best, to Blockbuster’s customers. One such customer, in fact, was the entrepreneur Reed Hastings, who was so irritated by his $40 late fee for Apollo 13 from Blockbuster that he started Netflix.

Rare is the customer who will be so outraged by your company’s service that he or she starts a competitor that burns your company to the ground and completely reinvents an entire industry, but let it be a lesson to you nonetheless: Be kind to your customers. Without them, you’re nothing. 

The Future Favors The Cohesive and Collaborative

Running a company successfully is one of the hardest things in the world to do. I truly believe that. In addition to “keeping the lights on,” which can be challenging enough in its own right, you have to look for new opportunities, face unforeseen challenges, analyze the market for trends to capitalize on, and do much more long-term envisioning than many are used to. All of these things are impossible to do if your team lacks cohesion or is riven by in-fighting.

While most people think the shift to online video was the proverbial straw that broke Blockbuster’s back, at least some of that blame can be traced back to the messy battle for control of Blockbuster’s board that was waged by activist investor Carl Icahn beginning in, you guessed it, late 2004.

Former Blockbuster CEO John Antioco said as much in an HBR article recapping his experience attempting to keep Icahn from taking over the board. He wrote, “CEOs need to be devising strategy, working with board members, energizing organizations, and dealing with shareholders, but most leaders are ill prepared to handle an activist shareholder who comes at the company with a proxy fight and wins seats on the board.”

A lack of cohesion that impairs your ability to execute doesn’t have to be as dramatic as a challenge from a billionaire corporate raider to have the same negative effects. I’m not suggesting you sit around a drum circle singing Kumbaya to close out all your meetings (unless things really spiral out of control). Healthy dissent and discussion are often necessary to reach the best outcomes and ideas, but internal strife has the potential to sidetrack or even upend your company if it becomes too much of a distraction.  

Ultimately, the biggest competitive advantage you have in today’s world is not deeper or more expansive knowledge. It’s better execution in the name of serving the customer. The ability to act and react, continually delight customers, and work as a cohesive unit is what sets successful organizations apart from the rest.