DeepDive: Differentiation
Differentiating your company from the competition is what ultimately determines whether or not your business succeeds. That is assuming that you have already identified a sufficient market to go after.
Let’s assume that there are indeed customers in the market that you have identified. There are also competitors currently providing their solutions to those customers. In order to enter, survive, and succeed in the marketplace you will need to stand out to customers so that they choose you. The customer is kind of like the bachelor. They know they want a partner (solution), and they may already think they have a favorite, but the decision is not yet final. The good thing is, you don’t have to be the biggest, strongest, best solution, (not yet at least). Just find out what the customer is looking for and see if you can play your strengths to appeal to them.
That means you first need to know your strengths and weaknesses. Knowing what you are good at will lead you to figure out what you can be best at (or at least better than the rest of the options). And knowing what you aren’t so good at will show you whether you need to find ways to improve, or focus on something else. Understanding these things serves as the basis for how you plan to position the business relative to the competition. In other words, creating a unique competitive advantage.
This may seem kind of intimidating at first, especially if you are still single. Fear not, just as the saying goes, “There are a million fish in the sea.” There is always someone else out there for you, and more importantly there is always another customer. And since we are already comparing customers to lovers, there are two primary ways to approach finding them.
You can either spend your time filtering out and seeking that one special person that checks all of the boxes. This is going more toward the niche differentiation, searching for a specific subset of the market that is underserved. This will take a lot more work in the beginning to find them, because it is a much rarer fish. But once you find them, it will be a much smoother catch.
On the other end of the spectrum, you can try to find love where it is convenient. This is what most people do, and this is what most of your competitors will do. For the average person or customer, their decision will be based off of their immediate perceptions. The best analogy is to use the classic girl at the bar scenario. It is loud and chaotic. There are 25 other guys there who may be taller, stronger, handsomer, wealthier… You can’t just expect the chance to get to know her. So you have to make a stellar first impression in a very short amount of time if you want to get her attention. That requires you to do something that makes you stand out. That same scenario goes for your business. You will be going up against all kinds of superior competitors. The only way to get the customers attention is by focusing on a couple key things that they truly care about.
Regardless of which direction you pursue, the main objective is still the same. You need to create a Unique Value Proposition (UVP) that sets your company apart from the others in the marketplace. To do this you must first understand what we call the SWOT analysis. If you have taken a business class you have probably heard of this, if not, SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is important to understand that Strengths and Weaknesses are internal, meaning that they are things that your company HAS control over. The opportunities and threats on the other hand are external factors, meaning that they CANNOT be controlled by you or the organization. The SWOT analysis is usually organized into quadrants like seen below.
Creating a SWOT will show what it is your company is good at and bad at, along with the available opportunities to pursue and threats to be aware of. This information can even be taken a step further and used in a TOWS matrix; Basically an extended version that adds four more boxes where the factors overlap to make actionable insights.
Using these insights you can craft your UVP and specify exactly what makes your company different (and better) than the competition. The UVP should encapsulate your main unique advantages in a few concise sentences.
Now unless your business has been running for years, all of this is highly speculative so it can be challenging to stay honest about the ways you plan to differentiate. It is easy to say something, but much harder to actually do it. So you should try to be very detailed and comprehensive about what your planned strengths and weaknesses are going to be and how you can ensure that they are accurate. Also consider as many possible opportunities and threats as possible (there will be plenty). A good starting point would be to run through PEST (Political, Economic, Sociocultural, and Technology) external factors that will affect the market environment.
At the end of the day, the main point of doing all of this is to stop pretending you can be the best at everything. It isn’t possible, or even necessary. All you need to do is be really good at a few key things, and differentiate by figuring out how to play those things to your advantage.
More on Startup Strategy to come. Stay Tuned!
