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Lesson #1: Does Your Business Have an SCA?

Guest post by: Christopher Golis

Article Overview: The first of 5 key lessons that every budding entrepreneur shoul learn. The five lessons are taken from Enterprise and Venture Capital: A Business Builders' and Investors' Handbook 5th Edition Allen & Unwin 2009 by Christopher Golis. The book is based on his 25 years as an entrepreneur and venture capitalist and his talk 5000 Business Plans, 50 deals, 25 Write-offs which he regularly gives to entrepreneurial workshops.

Lesson #1: Does Your Business Have an SCA?



If you go to my LinkedIn profile you will see I worked some 25 years as an entrepreneur and venture capitalist. Go to the bottom of the profile and you will see in the Slideshare section a presentation called 5000 Business Plans, 50 deals, 25 write-offs: Lessons Learnt from 25 years as a VC. In this presentation I describe five key lessons that I have learnt and over the next five months I am going to elaborate on these five lessons. The first lesson is does your business have a sustainable competitive advantage? This message was rammed home to me when after graduating from Cambridge in 1967, working for two years at IBM in the most boring place in England, namely Welwyn Garden City, I joined a brand new start-up computer bureau as the systems programmer based in Oxford Circus, smack dab in the centre of swinging London. I was one happy bachelor.

Computer Time International Limited (CTIL) had previously been a broker, matching selling the computer time of clients who had dead night shifts due to excess computer capacity to those who were short of computer time. In particular they had four major clients each buy around 40 hours per week. The owners came up with the idea that instead of renting time, they could rent their own computer from IBM. Accordingly they rented what was at the time the largest 360 processor in the UK, a 512kb IBM 360/50.

Unfortunately only two of their clients came across; the other two contacting the appropriate counter-party directly and striking a deal between the two of them. After nine months CTIL collapsed with the usual explanation of undercapitalisation. However I now realise, with hindsight, CTIL was never going to work as Moore's Law meant that whatever happened computer time would get inherently cheaper. A simple lesson yes but you would be amazed at how few business plans I have seen that have a true SCA. Also how few entrepreneurs know how to create an SCA.

For example on page 25 of my book I describe how a struggling Sydney CBD printer had a wonderful SCA in two city parking spots. As soon as the owner and production manager came in by rail instead of by car, and sent out flyers publicising the easy access to their printing business boomed. People forget how heavy paper flyers are.

Within two years of Neverfail SpringWater starting it had over 40 competitors. Everyone else talked about their pure water. We realised that once we had grabbed a location, customers would not change suppliers and the battle was get market share. The SCA of Neverfail was the location of water cooler. So we focused on free trails, commissions to the drivers who could sign up neighbouring offices etc

Jack Welch has a saying that every budding entrepreneur should never forget:

"If you don't have a competitive advantage, don't compete."

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Article Tags: business builders, entrepreneurs, Golis, venture capital



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