Yes, your product is differentiated … so what?
Every VC, or venture angel has heard it. Maybe you’ve even said it. In answer to the question “who’s your competition?” The simple answer comes back:
“We don’t have competition.”
Why do entrepreneurs say this? In this fast paced world, if you have a good idea meeting a real market need, the chance of you having no competition is zero. Are we just stupid? No. The problem is we get fixated on our differentiation and we feel like no one solves this problem the same way so we really don’t have competition. This kind of thinking is a big problem in more than one way.
The first problem is simply that it isn’t true. If you don’t have competition you don’t have a market. If it is a big enough problem, your customers are likely already solving it themselves and the people who solved the problem at a company will be your next competitors.
The second problem is that fixating on your differentiation can kill your company if you are not careful. In a country that embraces individuality and standing out, competitive advantage and differentiating is often the first thing we think of in startups. You just need to make sure that before you become the red tulip in this picture, that your market isn’t only for yellow ones.
I was reading a post from Steve Blank, author of “The Four Steps to the Epiphany“, this week titled “Lean startups aren’t cheap startups” and one part really struck me. He enumerated the top three causes of an out of control burn rate and it really got me thinking about company differentiation.
The key contributors to an out-of-control burn rate are 1) hiring a sales force too early, 2) turning on the demand creation activities too early, 3) developing something other than the minimum feature set for first customer ship.
These observations are spot on and I have the scars for all three of these at various times in my career. It was the third item, speaking to building a product containing other than the minimum feature set that triggered the thought about differentiation.
Steve Blank and others like Eric Ries have pioneered quite a bit of work on lean startups and building the Minimum Viable Product (MVP). I won’t go into this concept other than to say that their advice to only focus on the minimum feature set that meets your customer problem demands that you look at differentiation in a different way.
Your best differentiation isn’t your most unique feature. You differentiate by understanding and meeting your customer needs better than the competition.
Here’s a test you should run. Ask your customers and prospects what are the most valuable things about your product or service.
Test #1: Did they mention your term for your key differentiator?
Test #2: Did they mention the benefit from your your key differentiator?
If you can answer both of these questions yes, then you are on the right track. You are spending time and energy building features that have value to your customers and differentiate you from your competition. If the answer to the first one is no, but the second one is yes, then you are still in good shape for product direction, you just need to consider how you are marketing your advantages and whether this is resonating with your prospects.
Unfortunately, there are many companies where despite spending time and energy on a particular feature set and key differentiator, it simply isn’t important to their audience to meeting their immediate need. This is often the case when companies say that they don’t have competition.
Does this mean that companies should stop innovating and only build what their prospects or customers are asking for? No. It does mean, however that all innovation starts with a basis of customer need and meeting the most important needs first and better than the competition is the best differentiation a company can have.
Couldn’t agree more. I think the dot com bust is a great example of this: so many companies that were really doing “one offs” to differentiate themselves – often with differentiation that was little more than messaging spin – when in fact their core value add was essentially commoditized. Staying focused on the true value you bring to the market is key.
Is that third point (MVP) much different from saying “the best is the enemy of the good”?
ScottF, it’s similar but not quite the same. MVP deals with rapid product iteration and ruthless adherance to building only those most important features that address the customer need. “Best is the enemy of good” does deal with product feature trade-offs, but doesn’t encompass the direct customer feedback loop that MVP requires in my opinion. Thanks for the comment.
Seems if your name is Scott, you have a lot to say about this post
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I think we may be an example of MVP, the fact that we launched a product line ( GadgetTrak ) focused on the consumer market as it was low hanging fruit and allowed us to get the product to market quickly. As a boot strapped start-up this allowed us to do two things; one generate revenue and two prove the technology which we have done through several theft recoveries.
This approach allowed us to having working capital to improve our technologies, as well as valuable customer insight. The way I see it our customers are our biggest investors as they purchased our product, providing revenue and proving the market and need for it, as well as providing valuable feedback for future iterations
We have a HUGE competitor in front of us, but with our different approach to solving the same problem and the fact that we listened to customers and have developed a technology road map that further solves the same problems while addressing key customer concerns will put us in a better position.
Larger companies are just that, it is difficult for them to innovate. As we know from science class once a large body is moving it requires greater energy for it to change direction. Using a bit of Judo you can use this mass against larger companies, small nimble companies have a big advantage over larger companies when it comes to innovation, the key is finding the right pressure point