Building a "Better Product" Isn't Enough

👋 Hello, welcome to the Startup Hustle! I’m your guide, Matt Watson. I share weekly tips from my 20+ years of startup founder experience and stories from other entrepreneurs from the Startup Hustle podcast.

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This weekend, I kicked a solicitor off my front porch.

He was trying to sell me a pest control service that was "three times better than my current provider."

There was just one problem...

I didn't have a problem with my current vendor. My only pest was the solicitor himself.

His "better" service didn't mean anything to me. Even a marginally lower price wouldn't have sold me. The hassle of switching vendors is a... hassle.

In business, you have to do more than be better than your competition.

Instead, you need to be better for a different set of customers.

Today, let's talk about differentiating yourself and not just “being better.”

First off, there is one key thing you have to understand...

Price isn't a good differentiator

Price alone is not a way to differentiate yourself. A product that costs $49, $79, or $99 is basically the same.

Businesses usually are not very price-sensitive. Partially because it isn't even their money they are spending!

They are trying to solve problems and want someone they can trust to solve them. A more expensive product actually sounds more trustworthy than the cheap option.

"Nobody gets fired for buying IBM" is a real thing.

Here is another example: I pay $99 a month for QuickBooks.

Saving $50 a month would actually cost me thousands of dollars in time and effort to switch. Being "better" than QuickBooks doesn't matter if it is already meeting my needs.

There has to be something more compelling than saving the $50.

Companies eventually switch away from Quickbooks because they need features it doesn’t have, not because of price.

Competing on price alone erodes your ability to be profitable. It takes a massive scale to be profitable. That doesn't mean this strategy can't work. It is just super difficult.

The best example of a company that executes that strategy is Zoho. They provide dozens of different solutions, and they are usually the cheapest option, never the best option. My company canceled Slack and switched to Zoho Cliq. It's actually worked out great for us and saved us thousands of dollars a year.

When your prices are the lowest, you also can't afford to do sales and marketing. Being the cheapest is a challenge. It is a market segment I don’t recommend.

Understanding Market Segments

Are you building a Ferrari or Kia?

It's important to understand which market segment you are going after.

Enterprise buyers are looking for advanced features. Small companies want something simple and easy to use.

For example, Salesforce is an expensive enterprise CRM product. Most SMBs aren't even going to look at it.

They will look at Zoho CRM for a fraction of the price.

You have to understand market segments and pick one. It is super difficult to try to serve multiple ones.

Our average customer at my company, Stackify, was a small dev team, and they only paid us about $3000 a year. Meanwhile, we had competitors that were charging $50,000+ a year. We were competing for totally different clients.

One key to differentiation is competing in a different market segment or potentially going after a specific niche.

Vertical Specific & Niches

One of my current companies is a software service that manages Google Ads.

That doesn't sound very specific... but...

We only focus on plumbers, HVAC, and electricians. 🎯

They have very specialized needs when it comes to their advertising. They need to dynamically change it daily based on their workload. Capacity constraints make their needs unique.

This kind of specialization makes you not only better than the competition but also the only option that makes sense. We can position ourselves as the experts in our little world.

Earlier, I mentioned CRM software like Salesforce or Zoho CRM. My first company was actually a CRM product, but we didn't compete at all with Salesforce or Zoho. Our product was vertical-specific and only sold to car dealerships.

Sometimes, you need to build your entire company around a specific vertical or niche.

Unique Features

Every business is different, and it commonly has specific things it is focused on. Its problems are uniquely its own. This leads to it looking for solutions tailored to its unique use cases.

For example, I was recently looking for account-based marketing software and wanted one that could work with my LinkedIn and newsletter activity. Most solutions I looked at didn't support this use case. I managed to find one that would, and I instantly signed up!

Another example is the newsletter software I use for this newsletter, Beehiiv. I was previously using Substack and specifically switched to Beehiiv because it had API support, which Substack didn't. I wanted to be able to add subscribers via Zapier or other workflows, which wasn't possible with Substack. However, Substack also had unique features like support for podcasts, videos, and notes that I didn’t care about.

They have similar products but focus on different types of users and niches within the same exact market.

Most products have unique features. What weird use case or feature can you support that your competitors don't do?

This could also be an integration or special partnership.

Integrations & Partnerships

I recently contacted an advertising company to inquire about their services. They turned me away because they didn't support integrating with our CRM, Zoho CRM.

Integrations and partnerships can be a big differentiator in certain markets. In previous companies I have integrated and partnered with others and resold their products.

Why? Because it helped me sell more of my product.

The key to partnerships is they have to be win-win for both parties.

You have to look for potential partners where your product can help them create significant additional revenues or sell more of their core products.

Pricing Model

How you charge for your product can be a big differentiator.

Many companies charge a flat monthly fee for their software.

However, some charge based on usage. This could be based on how much data, number of transactions, number of users, etc.

In some industries, using a different pricing model can be very disruptive.

One example of this is offering a freemium option.

Get lots of people using the product for free and perfect how to get them to pay to use specific features.

Another good example of this is Spotify. Their monthly subscription based pricing was very disruptive to Apple iTunes that charged per song.

Earlier, I mentioned Substack and Beehiiv. They also have totally different pricing models. Substack is free and focused on profiting from paid newsletters, while Beehiiv charges a monthly fee.

Simple pricing model differences, along with different features and niches, can dramatically differentiate products. Substack and Beehiiv are great examples of this.

Included Services or Consulting

By combing professional services with your software, you can have a unique advantage.

I recently purchased account based marketing software. I chose this specific company because they also provided additional services to help me ensure it actually works.

I wanted more than the software.

I needed a vendor that had expertise in how to deploy the product and actually make it work.

A mix of software plus services is a great combination in many companies.

My first company sold CRM software and we had dozens of employees that did on site training. We charged for that training and it led to substantial revenues as part of our business.

Selling the services is also a great way to generate more revenue early on as you improve the product and slowly build of revenue from your software.

Customer Service

Don't discount amazing customer service as being a differentiator.

At one my previous companies it was inevitable that most people who tried the product would get stuck and have some questions. (It was complicated to install.)

If we could answer those questions super fast and accurately they would keep investing time into using our product.

If we didn't, they would more likely move on to try a different vendor's product while waiting.

Our customer service response times were a huge advantage over many of our competitors who would take up to 48 hours to respond to customer support issues. Excellent custom service helped us win more deals during onboarding.

It also helps you get more referrals.

They key to growth in most companies is creating advocates and referrals. You do that by providing an excellent product and great customer service.

You are the difference

People know and trust you over the other 10 options out there.

Your brand.
Your thought leadership.
Your network.

Use it!

A lot of services are purchased based on trust and referrals.

This is key to how we sell our services at Full Scale.

You could find software developers anywhere. People come to us because they know me and trust us to provide them the talent they need at an affordable price.

Our competitors spam them daily, but they don't know or trust them. They know and trust us.

You can be the difference.

Your network, thought leadership and social media are powerful tools for selling and differentiating yourself.

I interviewed someone on the podcast today who has built a massive business that makes tens of millions of dollars annually, primarily based on her Twitter following!

Be Different, Not Better

Claiming to be better than your competition isn't compelling to your potential customers.

You must focus on what makes you unique or how you solve your customer's unique problems.

You need to be different than your competitors and better for that different set of customers.

Price is rarely a sustainable advantage; instead, focus on catering to precise needs with tailored features, integrations, business models, and service offerings. Tell a unique, compelling story that makes you the obvious choice.

Most importantly, nurture your most powerful differentiator – yourself. Because, at the end of the day, people want to buy from experts they know and trust.

Focus on being different, not better.

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