In the early days of a startup, you have to be good at everything. You need to be a decent salesperson, a passable accountant, and a mediocre designer just to keep the lights on. However, as the business matures, being “okay” at many things becomes a liability. To scale, you must identify the one or two things you do better than anyone else in the world. This is your Core Competency.
A Core Competency is a defining capability or advantage that distinguishes an enterprise from its competitors. It is the deep proficiency that allows you to deliver unique value to customers. It is the engine of your business.
For a founder, identifying this is critical because it dictates your resource allocation. You should pour your best talent and capital into your core competency and ruthlessly outsource everything else.
The Roots of the Tree
#The concept was introduced by C.K. Prahalad and Gary Hamel in a famous Harvard Business Review article. They compared a corporation to a tree. The trunk and major limbs are core products, the smaller branches are business units, and the leaves are end products. But the root system that provides nourishment and stability is the core competency.
You cannot see the roots, but they determine the health of the tree. Similarly, a core competency is often invisible to the customer. They see the iPhone, but the core competency is Apple’s ability to integrate hardware and software design.
To qualify as a core competency, a skill must meet three criteria:
- Market Access: It provides potential access to a wide variety of markets.
- Customer Value: It makes a significant contribution to the perceived customer benefits of the end product.
- Difficult to Imitate: It should be difficult for competitors to copy.
Competency vs. Capability
#Founders often confuse basic capabilities with core competencies.
Having a great payroll system is a capability. It is necessary to run the business, but it does not make customers buy your product. If your payroll system breaks, you are in trouble. If it works perfectly, you do not gain market share.
A core competency is different. It is strategic. If you are a logistics startup, your routing algorithm is a core competency. If you are a fashion brand, your supply chain speed is a core competency.
If you outsource your core competency, you hollow out the company. If you are a software company and you outsource all your coding to a dev shop, you have given away your leverage. You are now just a marketing shell.
The Focus Strategy
#Once you identify your core competency, you must align your organization around it. This is where the strategy of “focus” becomes practical.
If your core competency is product innovation, but your engineers are spending 40 percent of their time maintaining internal servers, you are misallocating resources. You should move to the cloud. Server maintenance is Amazon’s core competency, not yours.
Startups die from indigestion, not starvation. They try to do too many things. By strictly defining what is core and what is context, you give yourself permission to stop doing the things that do not differentiate you.
Evolution of the Core
#Finally, remember that core competencies are not static. What makes you special today might be a commodity tomorrow.
Twenty years ago, being able to build a website was a core competency for an agency. Today, anyone can do it with a template. You must constantly invest in deepening your knowledge and expanding your skills.
Founders need to audit their business annually. Ask yourself: Is our edge still sharp? Or has the market caught up? If the answer is the latter, you need to either reinvest in R&D or pivot to a new competency.