…the market and your company's positioning in that market is just as important as the product offering…

 

In last week’s article the One Million by One Millionprogramme was discussed, listing the nine self-assessment tools that need to be completed before entering the programme.

The piece focused on the first aspect, namely that of validated learning, with some pertinent insights arising from the work of Eric Ries in his book regarding The Lean Startup. This week we move on to the next crucially important facet for success, that of correctly positioning the startup in the market. The startup needs to have a laser sharp focus on identifying the target customer and positioning the product offering or its solution correctly. These are key ingredients to build a successful and sustainable company in the long term, especially with an exit strategy in mind.

Once a startup has created its initial product, one of the most important things a startup can do is build a positioning statement. The marketing strategy cannot be determined without establishing the startup’s position in the market.

The typical model for taking products to market with long development times is convoluted, with companies generally spending too much emphasis on building their product and then forcing it into the market (by guessing about what customers really want and will pay for), instead of using a defined process to discover their markets as they are iterating through product development.

Market Type

A startup’s market type dictates early positioning strategy and affects everything the company does, from product development to marketing.

The first step in positioning a startup is to understand the four market types:

  • A new product in an existing market
  • A new product in a new market
  • A new product attempting to re-segment an existing marketing via low cost

A new product attempting to re-segment an existing market by creating a niche

The second step in positioning a startup is to understand the specific high-level positioning strategy for each market:

Market Type

High-Level Positioning Strategy

A new product in an existing market

The market already knows the prevailing competitor set, so focus on why your features are better/different than the competition.

A new product in a new market

Don’t focus on product features since potential customers don’t know the product intrinsics (yet). Sell the vision – sell the problem that the product solves.

A new product attempting to re-segment an existing marketing via low cost

Fight competitors head-on focusing on a low price strategy.

A new product attempting to re-segment an existing market by creating a niche

Focus on how the product is better than specific elements of the incumbent’s product that has fallen out of favour with the market.

Understanding this high-level strategy answers many questions for startup executives, providing clear direction to the marketing strategy.

Competitive positioning is about defining how to differentiate the offering and create value for the market. It’s about carving out a spot in the competitive landscape, putting a stake in the ground, and winning mindshare in the marketplace – being known for a certain something that cannot be acquired elsewhere.

A good positioning strategy is influenced by:

  • Market profile: Size, competitors, stage of growth
  • Customer segments: Groups of prospects with similar wants & needs
  • Competitive analysis: Strengths, weaknesses, opportunities and threats in the landscape
  • Method for delivering value: How to deliver value to the market at the highest level

When your market clearly sees how the offering is different from that of the competition, it’s easier to influence the market and win mindshare. Without differentiation, it takes more time and budget to entice market engagement; as a result, many companies end up competing on price – a tough position to sustain over the long term. The low-price strategy should only be implemented if the startup is truly in a position to disrupt the market with a sustainable low cost product.

One of the key elements that many small to mid-size companies overlook is how they provide value at the highest level. There are three essential methods for delivering value: operational excellence, product leadership and customer intimacy.

Here is a hypothetical example of each type of value.

OPERATIONAL EXCELLENCE

PRODUCT LEADERSHIP

CUSTOMER INTIMACY

Herringer customers don’t want bells and whistles; they just want a good product at the lowest possible price.

Herringer focuses on operational excellence so they can continually offer the lowest price in the market. For example, they just patented a new machine that dramatically lowers their manufacturing costs. They’re not trying to create new or better products; they just want to produce more volume at a lower cost.

Herringer’s method for delivering value is operational excellence; it’s a key driver of their long-term strategy, and their positioning reflects it.

Orange Technology’s customers care most about quality – they want the best product.

Orange is completely dedicated to innovation and quality. They’re constantly working on product improvements and new ideas to bring to market.

They know what their competitors are doing and are completely focused on staying one step ahead in order to capture a greater share of their market.

Orange’s brand and culture is all about product leadership; their market recognizes it and is willing to pay for it.

Starboard’s market is flooded with products at all points of the price spectrum.

Yet, Starboard’s customers want more than a product off the shelf; they want customized solutions. So Starboard’s strategy is to know as much as possible about their customers’ businesses so they can deliver the correct solutions over time.

Starboard knows that they can’t just say “We offer great service.” Starboard delivers on their strategy in every interaction with their market.

These companies have a complete understanding of how they deliver value to their market. It’s part of their strategy, which makes it easier for them to win a position in their respective markets.

Here’s another way to think of it:

The startup can provide the best offering, or the cheapest offering, or the most complete offering, but cannot provide all three.

Competitors

Another key factor regarding competitive positioning is in fact, the competition. Sure, the startup needs to put their stake in the ground and claim their turf. But is it turf that can be owned and credibly beat the competition to own it?

Rather than leaving market positioning to chance, the startup needs to establish a strategy. What it is ultimately striving for is to be known for something – to own mindshare of the market. This is typically easier for consumer product lines than for B2B companies, because positioning a single product against three to five competitors is a simpler task than positioning a mid-size B2B company with numerous offerings in numerous markets.

Owning a strong position in the market is challenging for most small- to mid-size companies, but they have a better chance of achieving it if they can clearly define a strategy and build their brand around it.

Below is a checklist of questions to be asked of the startup regarding competitive positioning and pricing:

  • Who is the competition, and how do you differentiate from them?
  • What are the various classes of products in immediate and related categories?
  • Which, of those, compete directly with you?
  • Which ones are likely to move into your space?
  • How do your product features compare with the competition's? Can you compete on the basis of functionality?
  • How does your product pricing compare with the competition's? Can you compete on the basis of price?
  • How do customers and prospects view your offering, vis-à-vis competition? Do they see you as one-tenth the functionality, one-fifth or 300% the functionality?
  • What value does the customer see?
  • What are the customers willing to pay for your solution? One-tenth the key competitor's price? Same price, or 200% the price?
  • What price can you charge based on perceived value?
  • What is the ROI for the customer? How long will it take to realize the ROI?
  • Can you offer both better performance and lower price?
  • Whom do you need to partner with to offer a full solution?
  • How do you position win-win deals for partners?
  • Can you turn some of the competition to partners/channels/relationships, so as not to go head-to-head with them?

For a new business the problem of finding clients appears to be the most compelling task in the list of “Things to Do” but selecting and carving out the right market positioning is the first hurdle to be overcome to build a sustainable business.