How to differentiate your business for fast and sustained growth
Differentiation. Everyone says they’re doing it. Very few are doing it correctly. If you want fast and sustained growth, you need to work out where you are relative to your competitors. And what it is that makes your company different. So far, so obvious. Differentiation is vital for attracting and retaining customers and staff. But if you’re in a crowded market, it’s all too easy to say the same things as everyone else. We see this strategic convergence all the time.
At the beginning of our relationship, we ask our clients, ‘What makes your company stand out from your competitors?’ And what do they tell us? Typical responses are ‘We put the client first’ or ‘We deliver amazing customer service’ or ‘We’re passionate about what we do’. What do you reckon? Pretty weak, eh? These statements are just too vague. The acid test we apply is whether the opposite is true. No competitor will say we don’t put the client first or are not passionate. So these things aren’t differentiators. They’re too similar to what everyone’s saying.
The things that will differentiate you today are the drivers of willingness to pay. But how do you find these? And how do you know when you’ve struck gold?
Always start with ‘Who’
Simon Sinek coined the phrase ‘Start with Why’ and became world-famous for his TED talk of the same name. I’ve never agreed. You have to start with ‘Who?’ Always. It stems back to identifying your core customer – the word ‘core’ here is crucial. The customer you land on needs to be the single, most important customer with the potential to drive the most profitable growth.
Too often, companies look at differentiation through the lens of making widgets and trying to sell more of them. So when they try and differentiate, there’s an internal focus on the widget features and what they do. Instead, they need to be led by the problem they’re solving for these profitable core customers.
Spend time working this out. It’s critical. Explore the pains and difficulties these high-value customers are facing. Get under their skin. This is the first step to working out how you can be the best in the world at fixing their problem.
Look for white space
To find the willingness to pay drivers for our clients, we use ‘attribution mapping’. This is one of the main tools of 3HAG, a strategic growth framework devised by Shannon Susko. It’s beautifully simple, providing a comprehensive picture of your competitive position in the market, along with a practical road map for the next three years.
It can differentiate you by identifying the activities you need to focus on, which, combined, will make you stand out. The aim is to get to a place where your company is not in competition with any other. You’re not pitching against anyone else. There’s your proposal and only your proposal. That way, you won’t come under price pressure, and your core customer will buy at a profit.
Working through attribution mapping will throw up the holy grail of white space in your market. These are areas that are distinct from your competitors. Areas with the most commercial potential where you can focus. Then you can double down on these things to differentiate you from your competitors. It may take two or three years to develop but it will give you a clear direction of travel.
Focus on activities that support your differentiators
Once we have two to three true differentiators from attribution mapping, we get our clients to be more granular. Their output is put into an ‘Activity Fit Map’. Here we’re identifying the activities that come together in a mesh around the differentiator to make them true and sustainable. It’s all these activities together that will give you a competitive advantage.
Take the example of a legal client of ours. They’d identified that one of their key differentiators was the unique rapport they build with their customers. This had come from building a profile of their core customer – entrepreneurs with smaller businesses based typically on industrial estates. These customers had told them they loved the fact that the legal firm wasn’t afraid to give an opinion. Also that any advice they gave was based on the customer’s best interests and not fee-earning potential for the firm.
So, our client built a web of activities around building a strong rapport. Measuring NPS (Net Promoter Score), recruiting solicitors based on their EQ, weekly case updates, phone calls instead of emails – all of these things linked together to support their differentiator. They’ve gone from being a local, town-based firm to targeting the same core customer UK-wide.
For the first time, this client is clear on the identity of their target customer, how they go to market, how they win and retain existing customers and what their sales process looks and feel like.
The great advantage of building an activity fit map on the back of solid differentiators is it becomes very hard for your competitors to copy. To overcome your position in the marketplace, they would need to copy everything. If they only copy some of your activities, it could be disastrous. The example of Continental Airlines immediately springs to mind here. They tried to launch into the budget market to compete with Southwest, but only copied a proportion of their activities. It resulted in abject failure. They copied enough to make it pointless and, even worse, Continental Lite harmed their core business. A complete ‘lose lose’ situation.
Check that your differentiators are true
Check that you’re not identifying differentiators that you wish were true. Are they? And could you say they were true for your competitors? If so, they’re not differentiators. Whatever you decide on has to be rooted in fact and provable. Otherwise, there’s nothing to stop your competitor from saying the same. There shouldn’t be any room for defendability.
This was the basis of my interview with Fred Reichheld, the creator of NPS for our Melting Pot podcast. He’d introduced the concept of ‘earned growth ‘ – an accounting treatment that can’t be fudged. So instead of doing your NPS score badly or only choosing a happy cohort when you do your analysis, there’s an accounting treatment that will directly link your company’s growth to your differentiators. This will prove that they’re true beyond doubt.
Build a three-year plan around your differentiators
Once you’ve found your differentiators and the activities that underpin them, you can build a plan around these things for the next three years. Some may be improved, others maintained and there may well be some that don’t work out. It quickly becomes evident through the attribution mapping process if you’re putting effort into something that you’re not the best in the market at. Decide to give these activities up and focus on the ones that will reap the most reward.
Our digital transformation client Wirehive thought initially that customer service and achieving a high NPS score was their differentiator. But when they worked through this, they changed this differentiator to giving great technical advice. This had more power. Yes – their service needed to be good enough. But it didn’t have to be world-class and was no longer a differentiator.
The reason they came to this conclusion was they’d hit some frustrating barriers. They were finding it difficult to drive up their NPS score to 70 or 80. Yet churn was already very low. When they reviewed how they unlocked their core customers’ value, they realised that if they could help them solve more technical problems, they would spend more money with them. So they switched to activities that supported this – recruiting more specialists and offering useful technical workshops.
Allow your differentiators to evolve
As your industry and market evolve, so will your differentiators. Sometimes, you may be differentiating in a way that’s no longer true or relevant. You have to adapt and change.
By way of example, let’s say you’re the number 1 supplier of swimming pools in Hampshire. But you want to break into the London market. Your status in Hampshire is unlikely to mean much to customers in the capital. They have a very different lifestyle. So, you need to find some new differentiators. Maybe that’s building swimming pools in back gardens with no crane access or putting them in basements. Now you’ve identified this attribute, you can expand vertically or horizontally from the position you’ve taken in the market.
Or maybe your company needs to go more upmarket in the way it differentiates. In his theory of ‘disruptive innovation’, Clayton Christenson explored this, examining the ways companies tend to go upmarket over time. I was talking to a company recently that had 100 customers, four of which spent £10K a month. We discussed how, by targeting only 12 similar businesses to these four, he could double the size of his business in three years. A pretty good trajectory. By going upmarket, they could also expand the existing £10K spend to £20K or £30K. Then, they would need even fewer core customers but would grow exponentially.
Most of the time, people don’t think like this. It’s far more typical to think linearly. We’ve got 100 odd customers, so we need another 100 more to double. So they carry on selling all things to all people. No differentiation. Don’t copy everyone else. Change your perception and start thinking differently. This is how you gain traction in your market.