Differentiation is another way of saying: define your own market. By doing this well, you can avoid the problem of unseating incumbents because they don’t exist or are significantly weaker.
Why Most Features Aren’t About Differentiating
You’ve got 5 seconds. Tell me how you’re better than the incumbent I am currently using. If your pitch to me — as a customer, partner, or investor — is that your site has the most features: you’re screwed. Here’s why, from the perspective of each:
- Customers & partners: Yes, but, who are you again? I don’t put my eggs in nests that might disappear tomorrow, even if the nest has a built-in heater.
- Investor: So your company is a feature away from being destroyed?
In the Internet Era, features are cheap. Big or small, a company can bang out a feature in a week or two and start testing it. You disagree because said company would “never” build that feature? Never say never. Innovative companies always surprise people. Hoping your competition doesn’t want free money on the table is tantamount to gambling, and there is a much safer, more logical way of approaching this problem.
So many “feature” companies (i.e., they’d just be a feature in a bigger company’s product) are born everyday. The criticism isn’t that these companies are doing something “easy.” The problem is that many startups use a specific superior product experience or feature as a key differentiator, without considering whether or not it helps them corner a new or different market. Being “better” isn’t enough.
Same Thing, Different Optics
Certain feature sets, if marketed right, completely change your target market. This is key. Let me say it again:
Certain features put you in a different market.
Think about this for a moment. Most all companies are chasing a specific market. 18-24 females. College students. People who like coffee. Couples. Widows. Canadians with houses.
Not all features are created equal. Most features just add further convenience or refinement (i.e., “single signon,” “AJAX uploading,” “mobile support.”) But these same features, with the right marketing, change who your audience is. Sometimes marketing isn’t even required.
Remember that cheeky nest/egg example from above? This would be like saying, “let’s build huts and go after people because people prefer huts over nests.”
Why Incumbents Ignore Certain Features
Like I said, some features change who a company’s customers are. In worst case scenarios, some features alienate your existing customers entirely (i.e., killing your existing revenue stream).
For example, your feature might be a free, ad-supported version of an existing model. A very famous site called OKCupid did exactly this a few years ago. Even today, this is what they’re known for. Why didn’t the other players in the market copy them? Because going free would mean changing their customers from their users (who pay a monthly fee) to advertisers (who pay for data and exposure). Yes, much like Facebook, OKCupid’s product is its users, and its customers are its advertisers (mmmm sweet, sweet data).
While the main differentiating feature, being free, is an easy feature to build, even to this day, incumbent sites like eHarmony and Match remain paid services. They are ultimately after different markets. You and I can intuitively see that there is likely a well-defined difference between the two markets of people willing and not willing to pay for dating (income, what they are looking for, age, etc.). It’s clear now that there was always two markets in the dating space, and OKCupid successfully cornered it using a simple marketing message.
The key for you and I is to understand and learn from this lesson: figure out what differentiators you introduce that give you unique access to a new or different market from incumbents.
Don’t Get Distracted
In any given startup, there is probably a backlog of 100 features to choose from. And most of them are from customers. Think about it.
Customers ask for features.
These customers are asking you to pick their market. With each feature you work on, your are moving toward a given audience. If this is a market you don’t want, ignore the feature. A feature that doesn’t help you define, carve out, and keep a specific target market is a waste of time.
In some markets, usability is everything (mobile). In others, aesthetics (marketing). Yet again in others, speed (search engines). Maybe in another, depth of technical end points (APIs). And within these markets, there are niches with even finer requirements.
Identify your core desired audience and build features only they yearn for. Everything else is a distraction.
Feature != (does not equal) Technical
A feature isn’t necessarily a boat load of programming. A “feature” is a marketable unit of software development. The complexity of that development is irrelevant. It can be as simple as a change in design, pricing, copy, or even name. Here are some examples:
- Pick an XXX domain for your Pinterest clone: bam! PinPorn (NSFW). No difference in technical features from the original, but the site successfully corners its own market via community (the feature).
- Want to be a Groupon for gay people? Fab. (Another year later, they’ve exited their niche and become a mainstream fashion site.) You know how they did that? They built a sizable mailing list of the gay community from their original ideas to be a gay Facebook and/or Yelp. Fab’s differentiator? Good taste, according to them.
- Instagram’s killer feature was tight social integration (arguably pretty technical); yet Hipstamatic came first. Instagram brought easy sharing to a paid digital photo filter market that Hipstamatic defined.
- And, of course, there’s Facebook: a MySpace for college students. The killer “feature” was that you had to have a “.edu” email address. Facebook probably would have perished in its early days without those 5 lines of code (maybe less).
The Real Meaning of Market Differentiation
Recall my example about the free dating market. Rewind 10 years. Online dating was something you paid for. That was it. Maybe this is easy to recognize now, but this market dichotomy (free vs. paid) was not apparent until only recently.
When smart people ask you about your market differentiation, this is what they mean. They are asking you if you’ve found a market angle that existing players will gladly give up because they either don’t value it or can’t compete in it due to conflicting interests.
So next time you’re looking at a list of features to work on, ask yourself: “is this feature putting us in the market that we want to be in?”