Blending In Is Riskier Than Standing Out Companies Differentiate Or They Die
While targeting the largest possible demographic, many companies enter a flooded market, not realizing that by saying ‘no’ and being different, they would establish a monopoly in a realistically-sized market.
We have seen it more times than we can count. A new company wants the largest possible demographic, thinking they’ll make the most money that way, but not realizing that that’s where all the competition is.
Sometimes, they do realize that that’s where the bulk of competitors are, but they are overconfident in their ability to compete.
The solution is to simply be different. And we don’t mean at a granular level. We mean be different in such an intrinsic and fundamental way that that difference is meme-like, or makes it into a 4-word description of what you do. If you are first to market in how you solve a problem, all the better.
We define products by the problems they solve, not the way they do it, generally. So, you’ll still be discoverable if you solve a problem a different way.
The reason to differentiate is simple: while you will seemingly appeal to a smaller demographic, you will have no competition in that demographic. There are a lot of unseen challenges that go with not being differentiated.
When you consider ‘unicorn’ startups, or Web 2.0 Behemoths, they were all significantly differentiated, and in many cases, first to market, or ‘first in, best dressed’. In most cases, their differentiators were meme-like, almost elemental.
Why New Companies Follow The Herd
There are at least a few reasons why starters do what others are doing.
- It worked before. In an effort to minimize one kind of risk – which is whether there is demand for their offering – starters rush headlong into another: stiff competition.
- They underestimate the cost of competing in a saturated market. It’s a truism of market economics that competition for limited resource (like ad space or attention) drives up cost. What many starters don’t realize is that, even if they’re funded, the actual cost of competing can exceed revenue they earn from conversions. In fact, this happens often.
- They are overconfident in their ability to compete. Inferior products succeed all the time. The famous example is Betamax losing to VHS, who according to legend had deals with film studios and distributors, and who brought popular movies to their format, first. You can do something better than the other guys, and still lose.
- They are greedy. This is a rookie mistake. A lot of starters, when considering differentiators or feature sets, look at a market that’s $1BN a year, and a market that’s $10BN a year, and choose the former, not realizing that the $10BN/yr. market has 100 players, some of whom have been there a decade.
- They underestimate the power of habit or brand loyalty. There is less brand loyalty these days, and companies have to perform and produce to keep customers. That said, between a tried-and-true product or solution, and a new one that does the exact same thing, people – rightly – stick to what they know. You can overcome the momentum of habit or custom if you are suitably differentiated.
- They don’t realize they can charge more – in that smaller market – if they are unique. So, starters often want the bigger market. But competing there is harder, and that challenge most often manifests as a race to the bottom, price-wise. Conversely, you can charge more if you are ‘the only’ in your space, with ‘that one thing’, besides being more likely to succeed because you have no real competition.
At the risk of repeating ourselves: a company has to find a niche market, not just to form a monopoly (but ideally to do so), but to compete, and they have to differentiate in order to do that.
Differentiation doesn’t just help you set up a monopoly; doing so at a foundational or irreducible level (in any aspect – process, method, modality, etc.) makes it easier for harried and information-overloaded consumers to comprehend what you’re offering.
If you are subtly different in 10 different non-determinative ways, and there are 20 competitors in your space, each with 10 slightly different feature sets, a consumer has to cross-compare 200 data points.
It’s easier just to be Dysan vaccums: prestige vacuums. That’s effectively a monopoly. If they cut costs and design aspects – functional or cosmetic – they’re competing with 200 companies, in a race-to-the-bottom with garbage on Amazon.
So it’s a settled issue: you have to go an ‘Inch wide and a mile deep.’, and not ‘A mile wide and an inch deep.’ It’s the only way to win when there are so many competitors, and so many data points for consumers to swim through.