Innovation is the starting point for creating competitive advantage—but it’s no guarantee of one.

Think about it. To position yourself in the market and establish any sort of advantage, you first have to develop something that customers want—a product or service that’s competitive enough to gain traction. Without that initial innovation, there’s no foundation to build on.

All competitive advantages start with a seed of innovation.

Consider this: how could a company create a moat—a sustainable advantage—without having something unique or original? It’s not possible. Every moat, whether it’s based on technology, processes, or positioning, can be traced back to an initial breakthrough or unique approach that set the company apart.

The Role of Innovation in Building Moats

Typically, the initial breakthroguh can be traced back to either:

1. Cornered resource Gain access to something scarce or difficult to replicate, such as proprietary technology, a world class team, intellectual property, unique information, or other resources

2. Counter Positioning Advantage: Introduce a disruptive business model or product that existing players can’t or won’t easily adopt without cannibalizing their own profits.

Virtually all moats except counter positioning and cornered resource are built on scale. Wheter it is learning economics, economies of scale, brand, switching costs or network effects - you need scale to take advantage of them. 

And to get scale, you must create something valueble in the market place.

You must innovate.