They are reading the same books, hiring from the same talent pool, buying similar technology, monitoring each other’s websites, studying each other’s pricing, and likely making many of the same improvements you are.
Eventually, an entire industry begins to look remarkably similar.
That’s when customers start asking the question no business owner wants to hear:
If your answer is any of the following—better quality, great people, outstanding customer service, competitive prices, or we really care about our customers—you may have a problem.
Your competitors are likely saying exactly the same thing.
Learning how to differentiate your business isn’t simply a marketing exercise. Done correctly, your differentiation strategy can become one of your most important sources of competitive advantage.
Years ago, marketing strategists Jack Trout (one of my favorite thought leaders) and Steve Rivkin wrote a book with a title that leaves little room for interpretation: Differentiate or Die.
Their basic argument is still remarkably relevant. In crowded markets, businesses need to give customers a clear reason to choose them over someone else.
Trout believed that successful business differentiation starts with understanding the competitive landscape, identifying a differentiating idea, having the credentials to support it, and communicating the difference consistently.
I’ve written before about how to differentiate your business from competitors and why every healthy company needs a defensible moat around it.
But there is another layer to this. Real competitive differentiation requires choosing what kind of business you are going to build. And sometimes, more importantly, what kind of business you are not going to build.
One of my favorite lessons from Trout and Rivkin’s Differentiate or Die is their discussion of sacrifice.
Entrepreneurs aren’t naturally wired for this. We like opportunity.
A customer asks for something we don’t normally provide? “Sure, we can do that.”
A salesperson wants to pursue a customer outside our target market? “Why not?”
Someone suggests adding another product line? “Let’s try it.”
A competitor adds a new service? “We better add that, too.”
One decision at a time, the company gets broader. And broader. And broader.
Pretty soon, the business that used to be famous for doing one thing exceptionally well becomes reasonably good at doing 23 things.
The business grew. But its identity disappeared.
Michael Porter, one of the most respected thinkers on competitive strategy, makes a similar argument. Strategy involves creating a unique and valuable position, making trade-offs, and deliberately choosing what not to do.
That last part is important.
A good differentiation strategy should therefore include a list of customers you won’t pursue, services you won’t provide, products you won’t carry, and things competitors do that you have deliberately decided not to copy.
That’s strategy.
Harvard Business School professor Youngme Moon takes this idea even further in her terrific book Different: Escaping the Competitive Herd.
She points out an interesting problem with competitive benchmarking. Businesses constantly study their competitors: What are they doing better than us? Where are we weak? What features do they offer that we don’t?
Then we close the gaps. Seems logical. Except that our competitors are doing exactly the same thing.
Over time, everybody improves their weaknesses, adopts the industry’s best practices, adds similar features, and starts to look increasingly alike. We become a herd.
I see versions of this among entrepreneurs all the time. Everyone in the industry offers free estimates, so we do too. Everyone promises a 24-hour response, so we do too. Everyone has three pricing packages, so we create three. Everyone says they have exceptional customer service, so we put “exceptional customer service” on our website.
At some point, you need to ask:
If you’re trying to figure out how to make your business stand out, constantly copying your competitors’ best practices might be the wrong place to start.
April Dunford offers another useful perspective in Obviously Awesome: How to Nail Product Positioning so Customers Get It, Buy It, Love It. Dunford argues that effective business positioning starts by understanding your customer’s competitive alternatives.
That’s a fascinating question because the answer may not be your obvious competitor.
A customer might hire another company. But they might also hire an employee, do the work themselves, continue using an old system, build an Excel spreadsheet, repair something instead of replacing it, or simply tolerate the problem.
Once you understand the customer’s real alternatives, you can ask what capabilities you have that those alternatives don’t, why those capabilities matter, which customers care about them most, and how you should position your business for those customers.
That’s much more powerful than saying, “We’re better than ABC Company across town.”
I’ve written separately about how to create a compelling unique value proposition, and it’s certainly an important part of differentiation.
But don’t confuse the statement with the strategy. You can craft a compelling value proposition without having built a truly differentiated business.
A strong value proposition explains why a customer should buy from you. A strong competitive position goes further. It makes the customer’s choice easier because you have created something particularly well suited to a specific customer, need, problem, or situation.
The words describe the difference. The business has to create it.
Brand strategist Marty Neumeier offers another wonderfully simple idea in his book Zag: The Number One Strategy of High-Performance Brands. Neumeier argues for radical differentiation. I like to simplify the idea into a question:
Try completing this sentence:
We are the only __________ that __________ for __________.
Don’t worry about making it pretty. This isn’t an advertising slogan. It’s a thinking exercise.
Suppose you own a commercial landscaping company: “We are the only commercial landscaping company in our market specializing exclusively in large HOA communities and providing clients with a guaranteed 24-hour response from a dedicated account manager.”
Or perhaps you’re an accounting firm: “We are the only CPA firm in our market that works exclusively with privately held construction companies between $5 million and $50 million in revenue.”
Notice what happened. Both companies narrowed their markets rather than broadening them. That specialization may actually make them more attractive to the right customers.
Now ask the harder question: Can your competitors truthfully say the same thing?
If they can, keep working.
Chan Kim and Renée Mauborgne offer another useful approach in their bestselling book Blue Ocean Strategy. Their concept of value innovation challenges companies to rethink the traditional factors an industry competes on. One of their most practical tools is the Four Actions Framework.
Ask four questions:
Those are terrific questions for a leadership meeting.
Most businesses spend their planning meetings discussing how to do more: add this, improve that, hire somebody, buy another system, launch another product.
The Blue Ocean questions force you to consider whether differentiation might come from doing less of something—or eliminating it completely. Sometimes subtraction is more powerful than addition.
There is an important warning here. Customers don’t care that you’re different just because you’re different. The difference has to matter.
Painting all your delivery trucks purple might make you stand out. It doesn’t necessarily make you valuable.
I would put every potential differentiator through five tests:
Miss any one of them, and you may have a problem.
If it isn’t different, you’re a commodity. If it isn’t valuable, customers won’t care. If it isn’t provable, it’s marketing fluff. If it’s easy to copy, your advantage won’t last. And if it isn’t profitable, you haven’t built a competitive advantage.
The objective isn’t merely competitive advantage. It’s sustainable competitive advantage—something customers value that your competitors can’t easily duplicate.
Here’s another mistake I see. The owner develops a compelling value proposition, posts it on the website, teaches it to the salespeople, and considers the job done.
It isn’t.
Suppose a contractor claims, “We are the easiest contractor in Phoenix to do business with.”
Great. Show me.
How quickly do you answer the phone? How easy is it to get an estimate? Do customers know when you’re arriving? How quickly do you return calls? How clear are your proposals? How do you communicate when a project is delayed? How easy is your billing process? How do you handle a customer complaint? What happens after the project is completed?
If “easy to do business with” is truly your differentiator, I should be able to walk through your company and find evidence of it everywhere. Your systems, technology, hiring, training, metrics, compensation, and culture should all support it.
That’s when your business differentiation becomes difficult for a competitor to replicate.
They aren’t copying a slogan anymore. They have to copy your business.
Trout offers one final warning that I think entrepreneurs should take seriously. Growth can destroy differentiation.
It happens innocently. A company becomes successful because it excels at something. Then opportunities appear: new customers, new products, new markets, new locations, and new services. The owner naturally wants to capture them. Five years later, the business may be three times larger—but nobody can clearly explain what it is known for anymore. This is why differentiation isn’t something you figure out during an annual planning meeting and forget about. You have to protect it.
As your business grows, keep asking:
Sometimes the smartest growth decision you can make is saying no.
If you’re struggling to determine what makes your business unique, don’t start by writing another marketing slogan. Start with the business.
Identify your best customers. Understand what they value most. Determine what you can offer that differs from their other alternatives. Decide which capabilities you have—or could build—that would be difficult for competitors to duplicate. Determine what you are willing not to do.
Then build your people, processes, customer experience, technology, sales approach, and marketing around that difference.
At your next leadership meeting, put these questions on the table:
Don’t rush through these questions.
You may discover that your business is very good. You may even find that it is better than many of your competitors. But that’s not quite the same as being different.
Jack Trout and Steve Rivkin articulated this decades ago in Differentiate or Die. Michael Porter addressed it through competitive strategy. Youngme Moon warned us about following the competitive herd. April Dunford brought the idea into modern positioning. Marty Neumeier challenged companies to find their “only.” And W. Chan Kim and Renée Mauborgne encouraged businesses to change the basis of competition altogether.
They approach the problem differently, yet there is a common thread:
So, take a hard look at your business.
What are you genuinely famous for? Why would your best customers miss you if you disappeared tomorrow? What can you provide that customers value and competitors can’t easily duplicate?
If the answers aren’t immediately obvious, you have some work to do.
And that’s probably a much more important conversation than figuring out how to become another 5% better than everybody else.
If you need help differentiating your business from the swarm of pretenders, click here for a complimentary video call to work through some ideas.
Coach Dave
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