Neptune Rules the Seas--Unfairly

In my August 3 blog, I wrote about the concept of “unfair” competitive advantage. Unfair competitive advantage occurs when a company can creatively develop, scrupulously monetize, and efficiently execute a product or service that significantly deviates from standard industry practice and truly matters to customers. I’m still in Australia, so it seems fitting that I choose an Aussie company to illustrate.Neptune Marine Services, based in the wild west coast city of Perth, provides engineering, maintenance and diving services in a wide variety of dredging, offshore and maritime markets. What gives Neptune a potentially huge unfair advantage are two things: First and foremost, the company has developed a proprietary and patented technology that not only breaks new ground, but actually changes the rules of the game—in this case, for underwater dry welding. This technology has potentially huge implications for businesses like oil rigging, underwater pipelines and shipping. Traditionally, if a big oil rig needs repairs, there are only two alternatives. The first is an emergency underwater wet weld. But because of moisture and salt, this is a band-aid measure that generally lasts for a few weeks at most. The second alternative is the time consuming and expensive dry dock weld. But Neptune’s new technology allows the welding to be done on site, underwater, while the rig is still operating, and the results are equivalent to a dry dock weld. Exclaims one analyst: “The potential is absolutely enormous and (Neptune) is only starting to scratch the surface.” In addition to this critical new technology, Neptune has done one other “unfair” thing: The company has taken its discrete (and increasingly commoditized) services like engineering, inspection, repair and maintenance and transformed them into a fully integrated value package of services that can be quickly customized for each individual customer—so much so that Neptune’s customers are now seeing value in outsourcing an entire set of all these activities (which traditionally have been kept in-house) right to Neptune. Small wonder that revenues of only $1.5 million in 2006 are expected to balloon to $27 million in 2007 and $70 million in 2008. One analyst reckons its 2008 price/earnings multiple will exceed 14, and that’s a conservative figure. The rewards of unfair advantage are rich. One last point. Every time one of my clients says “Well, it’s only the big, deep-pocketed companies that can do this stuff”, I wind up pointing to the research which says the opposite: that large, entrenched companies must continuously fight the dangers of complacency, rigidity, risk-aversion, and protection of the past, because very often, it’s the small, underfunded lunatic companies which lead the way, and then grow exponentially as a result. It’s easy to point to companies like Google and Whole Foods Market as exemplars, but out here in Australia, Neptune also makes the case.