Move guide
Test the advantage and the barriers
Your report suggested a move on at least one of these two questions:
- what the target's advantage is, whether it lasts, and whether it survives the combination;
- whether barriers to entry protect its position.
This move guide names the target's advantage and finds it in the numbers. It tests, customer by customer, whether the combination strengthens it or dilutes it. Then it costs the barriers from the side of a competitor trying to get in.
1. When it applies
Use this move guide if your report placed either question at "Red flag" or "Doubtful".
| Question | Where it may sit today | Where this move guide aims |
|---|---|---|
| What is the source of the target's competitive advantage, is it sustainable, and does it survive the combination? | Red flag: "There is no identifiable source: it wins on price, and only our synergies would make it viable." Doubtful: "The claimed source is generic, service or relationships, and every competitor claims the same." |
Supported: "A named source (capabilities, go-to-market, scale, assets, technology, brand, networks) shows up in the economics, is hard to replicate, and survives the combination." |
| Are there barriers to entry protecting the target's position? | Red flag: "There are no barriers: new entrants and better-resourced competitors are already taking the position apart." Doubtful: "Barriers are asserted; the economics of entry are untested." |
Supported: "Barriers quantified (scale, switching costs, assets, regulation, know-how) and holding." |
If both already sit at "Supported" or higher, skip this move guide.
Both are warning questions on the strategic buyer check. A low answer on either moves the report's verdict toward "Slow down".
2. What to do
Four steps. They take two to three weeks.
- Name the specific source of advantage: a capability, the route to market, scale, assets, technology, a brand or a network.
- Prove it in share, margin or win-rate data. A source that shows in none of them is a claim.
- Test customer by customer whether the combination strengthens it or dilutes it. Some customers buy from the target because it is independent.
- Cost the barriers from the attacker's side. Ask what it would take to compete with the target instead of buying it, and whether anyone has tried.
Table A below holds the advantage and the barriers.
3. What to produce
One table.
Table A. The advantage and the barriers
| Advantage or barrier | The number that proves it | After the combination: stronger, same or weaker? | What an attacker would need |
|---|---|---|---|
An advantage nobody has tested against the combination is the seller's advantage, not yet yours.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A food-service distributor is looking at a specialist supplier of kitchen equipment to restaurants. The seller says its edge is "service and relationships".
The advantage.
- The numbers named a different source: same-day repair in every capital city. Customers who used the repair service bought new equipment from the supplier twice as often.
The combination.
- Three large chains said they would stay. Two independent groups said they buy from the supplier because it is not owned by a distributor.
The barriers.
- To match the repair network, a rival would need technicians in every city and a parts stock. The last one to try left after two years.
Three weeks on.
- 1 source of advantage, proven in the numbers
- 2 customer groups the combination could lose
- 1 failed entrant, with the reasons it failed
On a retake, both questions could be answered at "Supported".
What it looked like in our work
From our own work. Redrawn.
For a buyer of an outsourced services business, our due diligence asked why clients change provider, and what changing costs them. The answers set the height of the barrier around each contract.
- Why: priceThe main reason, above all where the work is offshore and labour cost drives the choice.
- Why: poor serviceStrained relationships lead to a tender, rarely to an outright switch.
- Why: the client's own mergerThe merged client keeps one provider and drops the other.
- Cost: systems and processesChanging systems and processes slows the ramp-up and disrupts the client.
- Cost: retraining staffNew staff must be trained, which hurts most for technical, higher-value services.
- Cost: a new tenderClients usually re-run a tender, and must backfill roles in the meantime.
Contracts could be ended early, so the barrier was the cost of switching. It depended on how embedded the provider was in the client's daily work.
5. Effort and dependencies
- Deal leadNames the advantage and owns the combination test.
- Your own market expertsCost the barriers from the attacker's side.
- CustomersSay whether they would stay after the combination.
What you need
- The customer evidence from testing the growth and the customers.
- The target's share, margin and win-rate data.
How long
- Two to three weeks.
What gets in the way. We have seen these in our own work:
- An advantage held by two people. At a building-products manufacturer, two employees held every national account. The advantage would walk out with them.
- A cost edge that had gone. A branded food manufacturer's sourcing cost advantage had gone by the time of the deal.
- What good looked like. For a vehicle-accessories maker, the barriers were proven by a rival that had entered and failed, and the reasons it failed.
6. How will you know it worked?
The test is whether the advantage shows in the numbers and holds after the combination. Retake the check when Table A is full. Each of these should be true when you answer:
| Question | You can answer Supported when | A document alone does not count if |
|---|---|---|
| What is the source of the target's competitive advantage, is it sustainable, and does it survive the combination? | A named source shows in share, margin or win rates, and the combination test is done customer by customer. | The source is "relationships", with no number behind it. |
| Are there barriers to entry protecting the target's position? | The barriers are costed from the attacker's side, and they are holding. | The barriers are listed, and nobody has costed an entry. |
The worked example is illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.