Start with a Sustainable Advantage
If you’re pondering what business to start, a VRIN model analysis could be the key to your success. You don’t want to happen to you what happens to almost half of new businesses that are set up in the United States – to disappear with everything lost within five years (according to Bureau of Labor Statistics data).
What Is a VRIN model?
The VRIN model (like the VRIO model) was first developed in the 1980s. It’s a way to measure the competitive advantage of a business by examining its resources, which include capabilities, processes, knowledge, information, experience, assets, attributes, etc.
The theory is that if your resources are lacking, your competitive advantage reduces, and the lower this falls, the less likely you are to survive.
Like all great modelling systems, VRIN is an acronym that helps you to analyze the resources of your business:
The resources of your business that bring value can provide a competitive advantage. The question to ask of a resource is if it adds value to potential customers. This may, for example, be an internal resource such as a stellar sales team that helps you to exploit opportunities or defend against threats.
If the resource adds value, then you examine the next part of the equation.
Is the resource both rare and in demand?
If the answer is no, then you are in a position of competitive parity. You’ve got a valuable resource, but it is common. You can still compete, but it makes it more difficult to do so.
If the answer is yes, then you have a valuable resource that is rare but in demand. Like water in the desert.
Now, the question you must answer is, “Is it worthy of being copied and easily copiable?”
This isn’t limited to being copied, but can include being obtained in another way. New medicines, for example, are often barred from being copied for the first few years of their life. This makes them valuable, rare, and unique – with an unarguable competitive advantage – for a limited period.
Can the resource be substituted?
Water in the desert cannot be. A new drug can be copied and substituted by a generic drug as soon as it is permissible.
Does your resource give you undeniable competitive advantage?
Of each of your resources, ask the following questions:
If the answers are ‘Yes’, ‘Yes’, ‘Yes’, ‘No’, then the resource you are examining gives you distinct competitive advantage, and this means greater likelihood of success.
Where does the ‘O’ enter in VRIO?
Remember I said that VRIN is like VRIO?
In VRIO, the Non-substitutable question is replaced by analysis of your Organization. The question to ask here is:
Does your company – its structure, processes, culture, and employees – offer the capability to exploit the value, rarity, and imitability of your resources?
If the answer is no, then the resource offers no competitive advantage. If the answer is yes, then you have a resource on which you can capitalize. A resource that is valuable, rare, imitable, and in demand – and one which your company is capable of capitalizing on.
One of the most quoted examples of a company that ticks all the VRIN/VRIO boxes is Google. Its VRIO equation can be summed up as follows:
Value – its employees develop some of the most in-demand digital services in the world
Rarity – it has a great brand image, offers amazing customer experiences, and uses data extensively
Imitability – many companies want to imitate what Google does, but it is incredibly expensive to do
Organization – Google benefits from a large, highly-skilled, data-focused organization
Here’s what I know
If you’re starting a business, then the VRIN/VRIO model is invaluable as a tool to assess the potential of your business to be successful. It forces you to look closely at what you offer and compare to your potential competitors.
That’s not to say that there isn’t room for another food store, say, in a mall with half a dozen food stores already. But what you really need to identify is what it is that differentiates you from all the other food stores. Is there a demand for your products or services? Can they be easily copied? Is your company capable of supporting the sales of the product?
What is the business you are thinking about starting? What are the products and services you plan to offer? Have you done a VRIN analysis?
If you would like an honest, no-holds-barred appraisal of your business idea, feel free to get in touch with me for the most down-to-earth advice you’re likely to receive and can trust.