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.
•Focusing on the customer experience. How often have you been to a restaurant or into a retail store and thought “wow, the service was terrible and the place was a mess?” Would another restaurant or store need to develop a completely new concept to win your business? Unlikely. Businesses which focus on delivering exceptional customer experiences – managing every touch point well – can have identical models to others in the industry and be regarded as best-in-class. Earl’s and Shopper’s Drug Mart come to mind.
•Building and fostering business relationships and partnerships. Businesses that make it don’t often go it alone. Client relationships are nurtured and guarded like golden eggs. Sometimes being good also means understanding limitations and partnering with like-cultured firms to get stuff done. Business is typically still done person-to-person. Successful firms understand this and orient heavily around ensuring customers are happy with the company¸ and not just the product. Given the choice between differentiated and isolated vs. undifferentiated and buffered by relationships, a business would be foolhardy to pick the first, hoping a feature in a business magazine.
•Doing business locally before nationally or globally. The Canadian market is littered with the carcasses of failed businesses that tried to scale geographically too quickly. The logic for cutting the grass in your own backyard before heading down the street is straightforward. Span of control is the first issue here – it is easier to respond to problems and iron out the kinks of the business when you don’t have to board a plane or get someone on the phone in a different time zone. Relationship building is far easier to do locally, especially in the early going, since you can tap into your local networks. And cultural norms can also be a hidden barrier. We all have a tendency to apply our own frame of reference on business problems and plans, and those frames can get you in trouble in other places. Even in Canada, business is done differently in Ontario than it is in, say, Alberta or Quebec.
•Developing talent and/or investing in infrastructure. Good people and good processes get you through the rough spots. I’ve seen some business executives spend a ton of time with external stakeholders (like investors and coaches and mentors), thinking ‘I’ve got to know more”. That is selfish and only makes one person better. They’d have been better served teaching their own employees what they knew and/or working on documenting the ‘what’s and how’s’ of core operations, which makes the whole organization better. Successful businesses spend an inordinate amount of time team building, process building and system building, so the business can scale smoothly.
Does it help to be differentiated? Yes. But not at the expense of being good. Business, ultimately, is mainly about the fundamentals.
Special to The Globe and Mail
Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark’s focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.