When I talk to executives about growth, one of the biggest misconceptions I come across is that you have to be (very) differentiated to win customers and achieve scale. That you have to come up with a sexy, newfangled model that will put you on the cover of Fast Company. True differentiation is difficult to achieve, and over-hyped compared to business fundamentals and execution which I always think are more important in the end.
I’ve worked with plenty of “me-too” businesses and firms that have one little bend on an existing model who do just fine. This morning on my drive in to work I was thinking about how much the Pizza Nova model in Canada resembles the Papa John’s model in the US. And Pizza Nova is in pretty good shape.
Why are we always talking about “new”? Popular business books certainly contribute to a culture of “new” instead of “better”. It’s easier to sell “new”.
It’s not that the idea of differentiation is incorrect – of course not – it’s that it may be unnecessary in some industries/markets. For many firms, it’s better to be good than to be differentiated. And for those industries where differentiation is more critical (mainly mature, business-to-consumer markets), I would still argue product/service quality and fantastic customer experience will trump a differentiated but not great offering.
The practical problem with the idea that differentiation is the key element of success is the three main assumptions that come along for the ride, which are rarely applicable.
The first assumption associated with a need for a large degree of differentiation is perfect market information. I can think of few industries where there is perfect information in the market, i.e. where you and I know about all the providers of said product or service. This may be the case for large enterprise dominated business-to-consumer spaces, but 97% of Canadian businesses are SMBs or mid-caps, operating in spaces where the market information is opaque. And in the business-to-business market the knowledge of direct and indirect competitors is quite murky. So, the need for high differentiation is real if everyone (customers and competitors) knows everyone else – and then, only if the value proposition is not better than others in the industry.
The second assumption normally made is market saturation. Again, there are not a lot of markets out there which are truly saturated, which have no room for an undifferentiated new entrant. For most market spaces, there is plenty of untapped opportunity – to either grow the pie, or to take share simply by being better than competition.
And the third assumption is that the market itself rewards “new” more than it rewards “better”. The world has changed a lot in the last few years. Social media is fundamentally changing marketing, and word of mouth typically rewards “better” more so than “new”.
For every vaunted example of a successful differentiated business model, there are a ton of venture capital funded, brilliant and fully differentiated ideas that fail. And there are many not-so-differentiated start-ups and established players that crank out fat margins and are acquired for high EBITDA multiples.
I have worked with almost a hundred organizations over the last few years. The successful, sustainable ones worry about being good first and different second. They’re not chasing the magazine cover. What characterizes ‘good’? They worry about the following:
•Doing a great job on the core business. Successful businesses never take their eye off the ball to chase PR or more investors. They spend a lot of time, a lot of mental energy and a lot of money on ensuring the quality of their core product or service is top-notch – far exceeding the industry norm, even if means costs slightly higher than average. A good example is an Ontario-based, world-renowned theatre company that was looking to get better at e-marketing. Not once during my engagement with them was their focus or spend diverted from the stage productions which made them famous.
