Differentiating away from the arms race

 


If you are in a successful market, then you face or will face competition. If you face competition, then you must differentiate or suffer the fate of a price (margin) war.

There are several standard ways to differentiate including on features, distribution, design and values. Another way to cut up differentiation, however, is if you're differentiating on things your competition can copy easily, or not.

If you differentiate in ways your competition can copy easily, then you're in the arms race. If you're in the arms race, then you're in war time. If you're not in the arms race, then you're in peace time, which affords you the opportunity to walk your own path.

You can map this way to look at differentiation onto the standard ways. In the software world, twenty years ago features were hard to build (and thus get). Therefore, they were harder to copy and it was easier to get out of the arms race for a significant period of time through feature differentiation.  You still saw some differentiation on design and values (e.g. Apple), but way less so.

Fast-forward to today where features are much easier to build (and thus get). Now differentiation on features almost always puts you in the arms race.  With everyone rapidly getting connected over massive social networks, distribution is rapidly suffering the same fate. And design is not far behind as design tools, communities and education proliferate. That leaves values or some magical combination of overall experience.

Being in the arms race is not necessarily bad, and may even be desired. If you're trying to win a winner-take-all market, for example, then you probably want to be in the arms race. If you're trying to enter a huge established market, though, then you probably don't.

From the founder perspective, you are probably either a better war-time CEO or a peace-time CEO, and it is good to know before you decide where to differentiate. Or if differentiation strategy is a function of your market, then before you even commit to a market. For me, I'm definitely a better peace-time CEO and so by choice of market and strategy, I'm differentiating away from the arms race.

 

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