Why should your customers choose you over the competitors? This is the crucial question for your startup's survival and growth. It’s a nagging thought in every founder's brain: you are not alone in this competition for your customers’ attention, money and loyalty. While this fear is understandable, there’s no need to be intimidated by your competitors.
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Differentiate or die. Differentiate and make a whole lot of money.
There’s a lot of bullshit advice for startup founders. One of them is “Don’t pay attention to your competition.” You’re never alone in the arena fighting for your audience’s time, money, and attention. Once you find your ideal product-market-fit, there will always be someone trying to capitalize on the same opportunity. Ignoring your competition is why roughly 20% of startups fail–they got outcompeted.
Differentiation is the antidote to getting outcompeted. It’s what you do better or differently from the alternatives. You then actively communicate what you stand for relative to the competition. The goal is that your ideal customers remember it in buying situations and choose you over the alternatives.
Differentiation is crucial for survival. Besides that it also comes with wonderful benefits for your startup:
- you have the power to capture significantly more volume
- you can command a price premium and achieve higher gross margins
- you have much greater potential to gain value share in the future
Find your competitors by looking for alternatives
When you think about your competitors, you might come up with a set of rivals that look very much like your own company. That is not competition; it’s similarity.
When we talk about market orientation, the word „competitor“ isn’t very helpful. What we’re looking for are alternatives. It’s important for you to understand that you’re just one of many alternatives for the time, money, and attention of customers.
What are the jobs to be done for your ideal customers? That’s how you get to their alternatives. In that logic, Coca-Cola competes with coffee. Netflix competes with an early night.
Conduct qualitative customer interviews
You start with discovery. During interviews with your ideal or loyal customers, you’re aiming to find out what they increasingly want. This can be rational and irrational. You have to dig deep and find out who or what satisfies that need currently. How was their experience in the category, and how would they wish to improve it.
Use share of search as a crutch for share of market
Market share data is difficult to find for smaller businesses and emerging categories. Instead of share of market, we look at the share of search for your brand and your competitors. Share of search measures the total organic Google searches made for your brand. You then divide it by the total searches for all competitor brands in that category. It’s a very useful and cheap way to find out who owns how much of the cake at any given time.
Differentiation Strategies for Startups
To achieve differentiation you match what your ideal customers increasingly want with what you can deliver better or differently from the alternatives. But how to do it? Let's start with methods that work for big companies but don't work for startups.
Don’t compete with the market leader
In the David versus Goliath strategy, you are aiming to challenge the market leader in an existing category to become number two in the market. The goal is to beat the leader at their own game. The advantage is that the category is well defined and you wouldn’t have to educate and explain your product or service to your ideal customers. For new businesses, this is rarely a good strategy because the market leader has deep moats and can outcompete and copy your ideas easily.
Don’t invent a (sub)category
It sounds tempting and there’s a lot of buzz around the “blue ocean strategy” and “category invention”. The few companies that are able to pull this off are aiming to create a new market with no real competitors. They educate customers on the new category and enjoy the first-mover advantage. For this method, you’ll need about six to ten years of time. This is how long it takes on average for people to accept a new category. You also need deep pockets and patient investors.
Niche down to find product-market-fit
Let’s focus on winning strategies for startups and small businesses. When you niche down, you aim to dominate only a smaller slice of an existing market. During your market research, you search for underserved slices of the market that have an unmet need or want. Then you match it with what your company can authentically stand for and own in the future. Boom. Product-market-fit.
“If you do not define your brand, then your competitors will. And you will not like what they say.”
For this method to work, don’t try to be better; try to be different. Inspire to be counterintuitive from every clichè you usually find in the category. Don’t please everybody. Actually, try to piss a lot of people off and earn the respect and love for the subsegment that you picked. Startups with small budgets will be able to harness the power of close-knit communities. The niche helps to develop their product further and spread the word.
Think of your niche as the Launch Addressable Market (LAM). This is where you can easily launch your MVP product or brand and gain the first traction. It’s your very first entry point for your go-to-market strategy.
Once you excite your niche customers, you can move up to a bigger market. The Service Obtainable Market (SOM) should feel like a natural progression. You need to convince investors that your market is big and that you can find the path leading to the market.
Ladder against your competitor’s weaknesses
Laddering is a term coined by my admired marketing professor Scott Galloway. It is an attempt to de-position a competitor by highlighting one of your strengths, which happens to be your competitor’s weakness. You cast yourself in a positive light while at the same time casting a negative light on them. A wonderful example is Apple using Google’s and Meta’s negligent use of personal data to position itself as a privacy-first company.
Look and sound differently to stay top of mind
Meaningful differentiation from your competitors is important. Do the work to find rational and emotional attributes that you can own. On top of that, and probably even more importantly, differentiate your brand on a sensory level. Marketers call it distinctiveness. There’s impressive evidence that shows how much it influences customer choice.
A brand achieves distinctiveness by looking unmistakable like itself. It does that with unique assets like its logo, brand colors, a memorable jingle, or–the most impressive of all–a mascot.
For this strategy to work, you need a brand identity that goes against every rule in the industry. You also need a resolute marketing team that applies it consistently and frequently.
This event is part of a Phoenix Brand Consultancy event series for startups. Level up your brand strategy to answer the questions investors pose to entrepreneurs during pitches. Lay a solid strategic foundation to inform your decisions and grow your business to success.