5 Companies That Know Why They’re Great

In her book, Creating Competitive Advantage, author Jaynie Smith writes: “In my research with middle-market companies, I found only two CEOs out of 1,000 who could clearly name their companies’ competitive advantages. The other 99.8 percent could offer only vague, imprecise generalities.”

This is bad news because, as Smith notes, “Ignoring [competitive advantages] can be an expensive and even fatal mistake.”

If you’re a CEO running a company — whether it’s a small start-up or a major Fortune 500 giant — your success will ultimately boil down to creating and sustaining a competitive advantage that allows you to consistently outpace your competitors. But simply having a competitive advantage may not be terribly useful to you if you don’t know what your competitive advantage is and how to make the most of it.

But it’s not just CEOs who should be laser-focused on competitive advantage. Some of the most successful long-term investors are those who put emphasis on finding companies with strong competitive moats. Don’t take it from me. I recently highlighted the fact that Warren Buffett has said that competitive advantage is “the key to investing.”

Motley Fool co-founder David Gardner has a yen for competitive advantage as well, which has helped him pick out market-crushing companies like Amazon.com for the Motley Fool Stock Advisor service early on.

You know when they know
As Foolish investors, we’re ready to rock and roll when it comes to digging in and doing research. However, if we’re on the same page as Jaynie Smith, then the best companies are those where we don’t have to work very hard to figure out what they do best. Why’s that? Because companies that know why they’re great can find a way to tell us in a clear, concise, obvious way.

Let’s take a closer look at a few companies that do that well.

Coca-Cola (NYSE: KO  )
When it comes to competitive advantage, Coca-Cola has it in spades. To be sure, it has tough competitors like PepsiCo (NYSE: PEP  ) and, to a lesser extent, Dr Pepper Snapple, but Coke isn’t going to get dethroned by any ol’ jabroni with a pile of cash and a handful of beverage recipes.

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