Q: How do you know what your “competitive advantage” is if you are a start-up?
A: Competitive advantage is defined as that function, service, or other strategic offering that sets you apart from and above your competitors.
If you ar e just beginning, you will not know what actually sets you apart from your competitors since you have no “actual”. However, entrepreneurs start companies because they think they can do something better. They have a more refreshing methodology, offer better, quicker service, or have a more enticing product. Or perhaps the founders are better at marketing and PR, or know how to build partnerships, or have excellent relationships with the soon-to-be customers. Therein lies your answer, as a startup, to your competitive advantage.
Initially, one or more of the above (or something different but along those thought lines) will be your competitive advantage. If you cannot think of a way that you’ll stand out from your competitors, cannot think of a way to differentiate yourself, then you probably should not start a business. Or at least don’t do so until you can. Being successful as a start-up and an entrepreneur requires more than what you learn in business school. While a number of schools will offer entrepreneur focused education , it isn’t until you enter the real world that you are truly tested. Completion of an MBA program  is a great benefit, but starting your own enterprise takes a special determination. If you think you’re ready, then be sure to build your business around that which differentiates. Make sure you communicate your advantages in all your marketing efforts.
As most of you readers already have sizable businesses (over several million in revenue), this thought process applies to any add-on businesses you wish to start or acquire.
Beware: If your only competitive advantage is low prices, unless you have the low operational overhead and infrastructure to continually drive your own costs lower, your company could be at risk. Many of the businesses that failed during the recession competed solely on pricing. When things get bad, customers look for value. And value means much more than just low prices.