Three Unfair Advantages Every Startup Wishes It Had

I watched my New England Patriots win the Super Bowl on Sunday evening. (In case you didn’t know, I’m originally from the Boston area.)

So this is how euphoria feels.

My friends in Baltimore (where I’m headquartered) were as disappointed as I was elated.

Like everyone else outside New England, they hate the Patriots. They remind me every five minutes how the Patriots cheat.

“Your team has an unfair advantage,” they say.

And you know what? I agree.

The Patriots do enjoy an unfair advantage.

Heck, if the Patriots were an early-stage startup, I’d invest in them.

Not because they cheat. And not because they’re good at what they do.

That’s not a high enough bar.

I’d invest in them for the same reason I invest or recommend many startups – their unfair advantage.

Now this is where Patriot haters and I part company.

I admit the Pats have an unfair advantage. But it’s not because they cheat.

An unfair advantage is a rare thing in a sports team or startup.

You should know what it looks like. And learn to recognize it.

Because when you find it, greatness is that much more within reach.

Startups are better equipped to grow into dominating companies.

Teams are more likely to win championships.

And cheating has nothing to do with it.

Unfair advantages appear in these three ways…

Advantage No. 1: The Unfair Founder

I just got off the phone with an unfair founder yesterday.

He was talking about the many pain points he’s noticed in the global commodities market. He told me how one of them caused him to lose a boatload of money. Then he told me his solution. It had a couple dozen moving parts. And it covered all kinds of contingencies, leaving nothing to chance.

When I got off the phone, I knew this founder had an unfair advantage over other founders.

I couldn’t imagine another founder creating the solution that his startup offers.

I couldn’t imagine another founder matching his ability to recognize market opportunities.

I couldn’t imagine another founder seeing as clearly or as quickly where the sector is headed.

And I couldn’t imagine another founder having his insights on developing the next product generation.

An unfair founder’s experience in the sector they’re operating in may make them an expert.

But going to the next level?

That only happens when the “lessons learned” are deeply felt. Perhaps because they were particularly vexing or damaging (to the founder or others).

Whatever the reason, they often lead to a founder obsessively thinking about how best to solve them.

Which is how an unfair founder’s knowledge can tower above other founders’.

Such a founder usually has little problem out-maneuvering the competition. For example, they could thwart other founders copying their business model and/or service.

By the way, does this sound like a Bill Belichick-type advantage? (I think you can guess my answer.)

Advantage No. 2: The Unfair Marketing Strategy

The best unfair marketing strategy? When demand mushrooms by word of mouth.

What’s better than zero cost of customer acquisition? No marketing campaign backstopped by money? Not even paid influencers spreading the word?

Many of the top consumer companies today grew organically out of the gate.

Every startup dreams of it. But very few experience it.

So let’s move on to something more realistic.

A good example comes from another call I had last week. It was with a founder who heads a robotics company. He has partnered with two of the three largest users of product in his sector.

He gets high marks for unfair marketing advantage. The marks would only have been higher if he had captured all three companies.

Another startup I know joined forces with two large and powerful partners in China. Another one I’ve been talking to has one Chinese partner larger and more powerful than the partners of the other startups.

Unfair marketing strategy? No. Reliance on a single large customer/partner can be risky. What if the arrangement goes south?

I look for long-term arrangements with a number of the strongest channel or distribution partners in a startup’s sector. A marketing strategy isn’t unfair if it’s not going to last.

Advantage No. 3: The Unfair Product

Of the 10 startups in our First Stage Investor portfolio, four make products that are one of a kind.

No other company has the products or anything like them.

These companies operate as de-facto monopolies.

Governments don’t consider monopolies fair. (Unless, of course, it’s the government’s state-owned monopoly.)

But I believe the companies that solve a problem with a first-of-its-kind solution deserve the biggest benefit of a monopoly…

No competition.

Peter Thiel is the co-founder of PayPal and Facebook’s first professional investor. He agrees with me. This is what he says in his book Zero to One: Notes on Startups, or How to Build the Future

All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition. 

Okay, it’s a little overstated, but I like the spirit of the quote.

No competition is a really nice benefit. With success, competition will come.

In the meantime, these startups get to nail down product-market fit, build product awareness and brand, grow their customer bases and refine growth strategies – all without worrying about external threats.

Outlier Companies?

Of the three unfair advantages, unfair product was the one I found to be most common, with 40% of our portfolio boasting this advantage.

Looking at all the startups we’ve recommended over the past three years, I’d say 20% of our portfolio has the other two.

Remember, these are the startups that impressed us the most. Taking from the entire universe of startups, the percentages would be much lower.

An unfair advantage doesn’t guarantee success. After all, the Pats don’t win the Super Bowl every year.

But it does separate these startups from the pack. Their path to success isn’t quite as daunting.

For investors, it’s worth looking out for these “unfair” startups.

Invest early and well,

Andy Gordon
Founder, Early Investing