What Start-Ups & SME's Need Most - Differentiation

Many times, when you run a Start-Up or a Small/Medium Enterprise, you are wondering what your business really needs in order to confront the competition and grow.

You are asking yourself questions like:

Do I need to invest more?

Do I need more innovation?

Do I need to lower down the costs?

Should I increase the quality of products or services?

Should I … (unlimited questions)?

So, more or less the basic question is: What do you need most for your business (in order to have a sustainable competitive advantage)?

Well, the answer is simple but sometimes it is complicated to follow: You need differentiation. You need to position your business as a unique one to the customers, in comparison to your competitors.

According to Michael Porter (1980) there are three generic strategies for all sizes of businesses.

The first is cost leadership. This means that a business should target customers in every segment (in the specific industry that operates in) by offering the lowest price.

The second strategy is to target customers in every segment (in the specific industry that the business operates in) based on other characteristics and not based on the lowest price. This is called differentiation strategy.

Finally, the third strategy is called focus, and based on that, a business targets customers focusing in one or a few segments (in the specific industry that operates in) either by cost focus (lower cost) or differentiation focus (other characteristics except price).

When your business cannot compete based on cost leadership strategy or focus strategy then your business needs to follow the differentiation strategy. In this case you have to differentiate from the competition based on other criteria.

All right so far, but what are these other criteria?

The other criteria that you can differentiate are:

  1. Product or Service:

You can differentiate based on developing new products/services with new USP’s (Unique Selling Points) or based on improving existing products/services (new design, more functionality, higher quality, better service, introducing augmented value, improving delivery times, after sales support, and generally trying to find USP’s that your competitor does not offer).

  1. Price (Premium or Expensive):

Associate your price with high quality products and services. It is important to have the relative quality to do that.

  1. Place (Distribution):

Sell your products and services to alternative channels of distribution than the traditional ones that your competitors use.

  1. Promotion:

Differentiate using your communication strategy and marketing plan to create the positioning that you prefer. Use alternative tactics, design, media, advertising messages etc. as long as you have consistency.

  1. Brand:

Create a unique brand identity. Differentiate your design, colours, USP’s of your brand. Try to connect your brand with a specific projected emotion. Make your customers feel the desirable emotion when they see, hear, touch and use your brand.

  1. Other ways:

Be different based on the management, values and philosophy of the company, training of people (new unique skills), CSR (Corporate Social Responsibility), networking and so on.

Whatever ways of differentiation you follow, try to deliver an exceptional and memorable experience for your customers.

Now, I know that all these might sound old fashion news (having in mind the internet and social media world). The reality is that the same principles can be applied also online. You can differentiate your business online based on the same rules.

As a result, if your business looks like your competitor you have to do something (based on the above mentioned) as soon as possible! Try to think where you can be truly and sustainably unique.

Please have in mind that the differentiation strategy has one basic disadvantage. It can be copied. Therefore, find a way to be different that is difficult for your competitors to copy it quickly or if they can copy it, at least not to look as original as you (since you will have the first mover advantage).

Last but not least, do not forget that the concept of differentiation is to establish a unique sustainable selling advantage over your competition that will help you preserve your profitability and business development.

What do you think? What your business needs most?

Written by ibbds