Blending In Is Riskier Than Standing Out Differentiate Or Perish
While attempting to drive revenue by targeting the largest possible demographic, many companies enter a competitive arena and must split the yield with competitors. Often, they find themselves in a race to the bottom, price-wise, but lack the sales volume to cover overhead while slashing prices.
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’s where competitors are, but they are overconfident in their ability to compete – overlooking the ad spend might and customer loyalty of a company that has already staked a claim in the vertical they’re just entering.
But it’s a misconception that serving a smaller demographic leads to less revenue, for two reasons.
- Having some part of something, however small, beats having no part of something, however large;
- Niche demographics can be huge; If a 100W laser that is 1″ wide, but that is unstoppable, it will eventually intersect with as much matter as would a 100W light bulb; it’s a matter of penetrating, focused light, versus broadcast, diffuse, light. This is what Allan Dib calls going ‘deep’ rather than ‘wide’. It’s an illusion that being differentiated or focused will give you a small demographic.
The idea of serving a niche is subtly different from the idea of differentiation. One is not trying to be all things to all people (demand side); the other is making yourself different from the other guys (on the supply side). It’s implied that, if you’re different from the other guys, you’ll appeal to a smaller segment of the population – but not necessarily.
You can win with a highly differentiated product that appeals to a large demographic.
But we seldom see wins with an undifferentiated product that serves a small demographic.
The point of both modes of specificity is to reduce competition – between you and other vendors, and between your buyers and other buyers.
When we advise companies to differentiate, we mean in such a fundamental way that the difference is elemental, fundamental, meme-worthy, and reducible to a 4-word description of what you offer.
We define products by the problems they solve, not the way they do it, generally. So, you’ll still be discoverable in search if you solve a problem a different way.
Being substantially, even qualitatively, different makes it easier for harried and information-overloaded consumers. If you are only 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 vacuums: ‘high-tech, 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.
When you consider ‘unicorn’ startups, or Web 2.0 Behemoths, they were almost all ‘first in, best dressed’, or the outright only; effectively monopolies from day one.
Starters often opt for the bigger demographic, from the door, and redouble this mistake by not being differentiated. They end up appearing generic and bland to the public, and invite competition in droves.
Why New Companies Follow The Herd And Try To Appeal To To Too Large A Demographic
There are at least a few reasons why entrepreneurs do what others are doing.
- It worked before. In an effort to minimize one kind of risk – producing something for which there is no demand – starters rush headlong into another: stiff competition.
- They underestimate the cost of competing in a competitive 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, a) the yield gets divided by the number of contenders, and b) even if they’re funded, the cost of competing will often exceed the revenue they get from that (divided) yield.
- They are overconfident in their ability to compete. The best doesn’t always win. 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 into homes, first. You can do something better than the other guys, and still lose.
- They are greedy. 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 latter, not realizing that the $10BN/yr. market has 100 players, some of whom have been there a decade. Meanwhile, the $1BN market has no competitors, and would be far easier to capture.
- They don’t understand that penetrating a market (going a ‘mile deep’) will yield more than is superficially visible in the market. New verticals have been known to grow. Look at smart phones. Additionally, it’s almost impossible to accurately determine the size of a market or vertical that truly is new or emerging. If you penetrate such a market, most especially when you don’t have competitors, your initial revenue estimates will often be modest.
- They underestimate the power of habit or brand loyalty driving competitors’ sales. 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.
- They don’t realize they can charge more – in a market they own – if they are unique. When calculating revenue scenarios or projections, starters often forget they effectively have a monopoly, not unlike Disneyland or Lake Tahoe ski area beer gardens, and can charge whatever they want.
So, starters often opt for the bigger demographic, from the door, and redouble this mistake by not being differentiated.
They end up appearing generic and bland to the public, and invite competition in droves. The combination of these choices can prompt a race to the bottom, price-wise.
So it’s a settled issue: you should be different and appeal to a niche segment. The latter implies the former, but they can be separated.
This is the best way to win when there are so many competitors, and so many data points for consumers to swim through.