

Why do you need something to differentiate your business from other competitors? - srabeat

I am co-founder of a very young startup and I have struggle to understand why all the investors are asking for something that differentiate my business from other competitors. Assuming there is only one relatively bigger player in this very large and untapped market. What did differentiate Plated vs Blue Apron or Grubhub vs Seamless ( of course before acquisition).
Also we have shown (Launched in May 14) 25% weekly growth so far in our sales.
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dennybritz
I like this question. Differentiation is a pretty vague term and could mean
almost anything: A better user experience, a different approach to
sales/marketing, or a different business model. You're right, if you're in a
large market there probably is enough space for multiple players and you can
grow quickly even without differentiation. But you must still be prepared to
answer "Why should we pick you instead of XX?" from a customer. I don't know
what industry you are in, but competing solely based on price usually isn't a
good idea. You don't want to attract the "cheap" customers who can't afford
better/expensive products (they're often the most troublesome), and you don't
want to start a price war with other companies. What if a new startup comes
along and offers the same for 25% less?

I think what many investors are getting at is less about initial
differentiation and more about long-term defensibility. How can you make sure
that whoever comes along (competitor or new entrant) can't just copy what you
are doing for cheaper and steal away your customers? Do you have proprietary
data? Network effects? Customer lock-in? Does your service increase in value
the longer you around through data/network/customers?

Also, don't forget that most investors (particularly VCs) are looking for
breakout successes. They want to find the next Twitter, Dropbox, Airbnb, etc.
They barely make money from companies that are doing well but are just
cruising along. You can probably build a profitable business just copying what
your competitors are doing in a large market, but that's not what VCs are
looking for.

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1337biz
This is mostly a framing issue. I am sure you are having "something" that is
different from your competitors. The "Unique Selling Proposition" is getting
increasingly replaced by the term "Value Proposition". And "Value Proposition"
can be anything your company overdelivers - maybe your service is better,
maybe your servers are more stable, maybe your user experience is better. That
should be possible to argue a lot easier.

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srabeat
We believe we have a lot better customer service because I personally care a
lot about our customers. That's actually the main reason we have decided to be
more transparent with our pricing but from an investor point of view it's not
something that we can prove or measure, am I right?

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1337biz
You certainly can do some post-customer care survey and collect personal
testimonials of happy customers who praise how great your service was. But
these better be really awesome, otherwise it looks too forced.

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rufusjones
So customers know why they should buy you, as opposed to the 14 other
companies offering the same thing.

Unless you are building life-size replicas of people out of tuna salad and
Swedish Fish, other companies will do what you do. What makes your product or
service better than anyone else?

ANYTHING can be the difference-- price, components, features, performance,
service-- as long as you can prove to an investor that IT is the reason people
are giving your money, as opposed to competitors.

I have a friend who opened a comic book store that he staffed with women who
are lingerie models who can also (they have been trained) speak knowledgeably
about comics. That's his differentiator (Hooters of comics).

If your sales are growing, there must be something you are doing right (or
better)-- that people are picking coming to you for. Figure out what it is and
tell your investors that.

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srabeat
Our sales are growing but we are not both serving the same area. I guess most
of the investors we have talked to are concerned about the future when we want
to expand to the areas that they are already serving. You need to consider the
fact that we still strongly believe that the market and demand is a lot larger
than all the major competitors capacities combined.

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brudgers
Personally, of the companies you mentioned, Grubhub is the only one I recall
having heard of.

Differentiation can be as simple as name recognition. A canonical example
might be "Kleenex". AirBnB is a recent startup that I think captured some of
this.

In a growing market with low barriers to entry or an established commodity
market, name recognition is pretty much all there is. In a market with one
dominate player, "we are not the dominate player" is can also be a meaningful
differentiator.

The question is good if it is in reference to comprehensive execution - that
is the context includes marketing and advertising in addition to product. It's
a bit weaker if it is just about product. Product-market fit is why both
Porsche and Kia successfully manufacture cars people will buy.

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srabeat
In a market with one dominate player, "we are not the dominate player" is can
also be a meaningful differentiator. <\-- How can this be in our advantage?

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hollerith
This is the first time in many years that I've corrected someone's spelling on
the internet, but many writers are make this mistake recently, and it is
extremely annoying to some of us: it should be "dominant", not "dominate".

"Dominate" is a verb.

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saluki
Your sales growth sounds good . . . the investors are looking for something
you have that your competitors don't.

I would focus on your customers . . . maybe even do some quick phone
interviews with them . . . or look over your feedback/support requests and add
some features they request that would make your startup even better, providing
them with more value . . . there are always ways to innovate and do it better
than the other guy while providing more value to your customer. Then outline a
few of these differences to your potential investors.

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alain94040
If you truly are growing 25% a week since May, then that's your
differentiation right there: I promise you the other competitors are not
growing so fast. Maybe it's pricing or ease of use or better experience, but
the numbers speak for themselves.

By the way, 25% a week means you grew by 50X since May. Unless you started
with a really low number, that's great.

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srabeat
Almost every investor has been impressed with our growth but they are still
concerned about the future and how we want to get customers when we expand our
service to the area that is already covered by our competitor.

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billyboar
in my opinion, if you don't offer something different, why would someone
choose you over more sophisticated ones. Investors are people who want their
investments to bring them success and money. So success simply won't come, if
one isn't different or better than others. It means the best case is you are
going to be only as good as them, not better.

~~~
srabeat
What if the difference is as simple as different/more transparent pricing
model? or what if the market is a lot bigger than the size of all the existing
players combined? I guess my question is that how not offering a different
service can hurt you in the future?

