Competitive advantage is generated mostly through great product and user experience design, simplicity, and the concept of why as made popular by Simon Sinek in his book, Start with Why. That’s my opinion anyway.
Technology, infrastructure, intellectual property, and barriers to entry are also major contributors to competitive advantage, but likely contribute less for various reasons discussed in this article.
We live in a high tech world that is only getting more and more, well… high tech! Tech startups, venture capital, angel investors, private equity and the like abound.
This, and the fact that technology discussions are increasingly centered on topics such as virtual reality, artificial intelligence, machine learning, and the internet of things (IOT). In addition, the industry is littered with buzzwords like innovation, competitive advantage, differentiation, value proposition, machine learning, and so on.
The tech side of society has also become very noisy and dense. People’s attention spans are at an all time low. There are an inordinate number of software products and apps available, but not enough time in the day to use them all. There are therefore a ton of companies competing for every ounce of your attention, and a piece of the valuation pie. Great design and simplicity has never been more critical!
This article is based on my professional experiences, opinions, and concepts that I think are very important. It’s an overview of what I think contributes the most to true competitive advantage and product differentiation, and thus value and revenues.
What Exactly is Competitive Advantage and Differentiation
Competitive advantage and differentiation are similar concepts, but it’s important to have a solid understanding of both and their differences. A company and its product’s success, both near and long term depend heavily on each.
Differentiation is when a company’s products (or services) are notably different in a specific way as compared to those offered by their competitors. In other words, differentiation implies that a company offers something that no other company currently provides.
It’s very important to note that differentiation does not imply value and subsequent revenue generation. Suppose, for example, that I create a food recipe app with user reviews, and also offered a built-in egg timer.
While the timer could certainly be a differentiator as compare to other recipe apps, most people don’t visit these types of apps for reasons other than to get recipes and read reviews, and therefore this is a form of non-value adding differentiation.
This leads us to the concept of competitive advantage. I worked for many years in IndyCar racing helping high-dollar, high-caliber teams gain a competitive advantage over their competitors.
In the highly competitive world of IndyCars, often the top 10 cars will qualify for a given race with a lap time that differs by only a half second (0.50) of each other, over a lap that takes an average of around 1 minute and 30 seconds or so to complete. This occurs despite wildly different car setups, team engineering, team budgets, drivers, etc.
Even more impressive, the lap time difference between moving from one qualifying round to the next for the top competitors is often only one hundredth of a second (0.01) or so. To put that in perspective, you wouldn’t be able to start and stop a stopwatch by hand in that little amount of time, and probably not even within one tenth of a second (0.10) either. Try it!
Racing teams dedicate massive financial resources to gaining any performance and competitive advantage. Their efforts range from removing every bit of weight possible, to optimizing aerodynamics, suspension dynamics and handling, mechanical tire grip, minimizing friction, maximizing engine power through optimal gearing, race strategy, vehicle balance, suspension alignment, differential tuning, and the list goes on and on.
Trying to squeeze that last drop of performance out of your race car and driver combination to get that last hundredth of a second is no different than creating a winning product or service.
It’s all about competitive advantage, which means you offer something that other companies either don’t know about, or are simply not able to produce themselves. Competitive advantage is therefore generated by differentiation, but also through things like cost leadership as we’ll discuss.
Why Commoditization is Your Enemy
Companies are formed to create and offer products and/or services with the intent to acquire, retain, and grow customers in order to generate revenues and ultimately increase profits.
The key characteristics that typically set companies and products apart are product features, price, quality, and customer service. With the exception of customer service, the other three are highly susceptible to commoditization.
Commoditization means that given enough time, competitors will eventually be able to match one another in terms of things like features, quality, and price.
It is worth mentioning that despite similar pricing, a company can certainly generate competitive advantage through cost leadership. This means that a company has the lowest price to value ratio, i.e., can offer significant value at a lower cost to create that value.
The profound implication of commoditization is that a lot of the technical details that many people think will lead to competitive advantage may not, or will only do so for a short while until others catch up (unless protected by IP, which is discussed later).
Technical advantage is gained through things such as software applications (e.g., SaaS), cloud solutions, algorithms, data science, analytics, machine learning, and so on.
Don’t get me wrong, I’m a huge fan of everything I just mentioned and am a major proponent and practitioner. I also think these are must-haves in most cases, but the real question is about generating long-lasting competitive advantage, success, and growth.
The other thing that’s critical to note is that no matter how technical the algorithms, backend, or cloud architecture is to any product or service, the end user likely won’t understand or care about any of that. Customers are often apprehensive about black boxes as well.
To most customers, the user interface, user experience, any deliverables (if applicable), and customer service are probably the only items that they consider to be the product. Given this, I will explain why these are the real secret sauce for building competitive advantage.
Start With Why
Simon Sinek wrote a book called Start with Why. Read this book immediately if you haven’t already. Seriously, go read it!
The thesis of the book is that companies should always focus on why they are in business and why they offer the products that they produce, followed by how they are able to create these products and be a great business, and then what their offerings are exactly.
He notes that in many cases companies focus more on what they offer, and how they’re able to offer it, and only sometimes include the why at the end.
More often than not, those that focus on the why tend to be significantly more successful and for a longer period of time. Those that fit the second description tend to either not be successful, or lose success as they lose focus on the why of their company and the products they make.
Using the IndyCar racing example from earlier, here is an example of two different ways to describe an IndyCar racing team (which is a product by the way!).
What > How (with why omitted) >We have a world-class racing organization that you should sponsor (what). It’s worth investing in because of our sophisticated engineering, analytics, optimization, track and race strategy, and a strong desire to win (how).
Why > How > What >We believe that high-visibility, long-duration brand recognition, and helping to maximize return on advertising dollars spent is critical to driving profits for great brands (why).
Through sophisticated engineering, analytics, optimizations, track and race strategy, and a strong desire to win (how), we can offer you a world-class racing organization (what) that will help you accomplish your revenue-generating goals!
Given these two variations, to which team would you be more likely to give millions of dollars? Also, which team do you think has the better product and is more focused on excellence, creating value, and generating competitive advantage.
Not only does why help the customer understand how your company and products provide value, but it acts as the north star within the company as well. Every company decision made, product feature developed, user experience designed, and so on should be driven by the company’s overarching why.
One other crucial bonus from starting with why is that it leads to becoming a company that creates products that are perceived as having meaning, along with creating a community and/or movement that people feel a part of.
Apple has done this with their products as noted by Mr. Sinek, and people that use Apple products feel like they are a part of a global community and a greater cause. In most cases, Apple customers (of which I’m one) would rather pay more for technology and/or features that aren’t necessarily the most cutting-edge, or are missing entirely because of this.
That speaks volumes!
User Experience Design
The longer I work in, and use technology, the more I’m convinced that great user experience and product design are the primary keys to success and competitive advantage.
Despite my technical background and savvy, given two products that offer the same, or similar backend, black-box functionality, I will always choose the product that has or is:
- More aesthetically appealing
- Easier to use and understand
- More self-evident and intuitive
- More fun to use
- Better help and service
- Better documentation
- More rewarding and greater reward anticipation
- Better at satisfying basic human needs
- More pleasurable in general
This list describes various outcomes of great user experience design, which involves the look and feel of a product, but also includes human interaction, usability, accessibility, performance, and so on.
User experience can also refer to the complete and total user experience surrounding a product. That can include everything from the user having interactions with marketing (i.e., website, social media, blog, etc.) and sales, to signing up for a free trial, to using the product and getting support when needed, to upgrading their product subscription (e.g., SaaS) to leveraging more features and benefits.
I’m often amazed as to how little value is sometimes put on needing great UX and UI design, and often this is where corners are cut in terms of upfront planning and design. This is a huge mistake!
Great products aren’t competitive on technical merit alone, and don’t forget about commoditization as discussed earlier.
As mentioned earlier, life and society are very noisy these days. It seems like there’s a million apps, websites, news sources, blogs, aggregators, social media platforms, emails, notifications, alerts, talking devices (e.g., Amazon Echo), and on and on.
Feature creep happens, and way too often and too much. There are usually multiple stakeholders competing to get their features and priorities into the product, and not to mention all of the customer requests.
While it’s easy to appease these folks by adding frivolously to the product, often these additions do more harm than good, and I would argue that they reduce competitive advantage.
The Pareto Principle (or 80-20 rule) tells us that roughly 80% of the effects come from 20% of the causes. In product terms, this means that 20% of features produce approximately 80% of a product’s value in many cases. This subsequently implies that 80% of the features are not valuable, except perhaps to a select few users.
Features do not equal value. Solving a real problem, or eliminating actual pain points for customers equals value. Features therefore exist because they provide a benefit to the end user (often modeled with primary and secondary personas).
If a feature does not provide a significant and measurable benefit and subsequent amount of value, then it should not be added to the product. It’s that simple.
The same is true for user interface elements, copy, modules, widgets, and the like. For software, every page, tab, or form should have a primary purpose, intended user action (CTA), and/or information to present. The keyword here is primary.
What do you want the user to see or do while using different parts of your product? Anything that does not help the user achieve the primary goal, or focus on the primary information should be removed, and will only serve as a distraction.
For those that are familiar with science and engineering, this is comparable to the concept of increasing the signal-to-noise ratio by reducing the noise, or increasing the signal. We need to do both through great user experience, interface, and interaction design.
Without deliberate and relentless scrutiny of every addition to a product, the user will likely think the application is cluttered, unintuitive, hard to use, complex, and will simply not use it.
In addition, given the societal noise described earlier, people are desperate for self-service, automated, and super simple products that require very little thought or attention. Why do you think Tinder is such a smash hit?!
People are already dealing with so many tech products on any given day, and their cognitive processing ability is taxed at full capacity or very near, so simplicity has never been more important.
Other Sources of Competitive Advantage
While product and user experience design, simplicity, customer service, and technical implementations certainly help generate competitive advantage, these are not the only ways to do so.
In addition to technical design and implementation (e.g., software architecture, software engineering, devops, cloud infrastructure, etc.), intellectual property (IP) is also a key contributor to competitive advantage.
According to Google’s handy featured snippets, intellectual property is defined as:
A work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc.
Without getting into all the details surrounding intellectual property, I will say that you can definitely achieve major competitive advantage (think pharmaceuticals) if your product’s value proposition is largely driven by anything that you are successfully able to protect against competition with intellectual property rights.
This can be much easier said than done, time consuming, costly, and so on, but is certainly a great option when and where possible.
This leads to the concept of barriers to entry, which is a fancy way of saying that you have competitive advantage. Barriers to entry (for your competitors to compete in your market) are formed when you have a product or service that would be very time consuming and costly for others to develop, require significant technical expertise, or you already hold a large market share.
The last two major contributors to competitive advantage are what’s called the first-mover advantage (FMA), or said another way, having the minimum time to market (TTM) for delivery of your products and/or services.
While this can certainly be a huge advantage in many cases (e.g., LinkedIn), it can also easily be a disadvantage and result in lost competitive advantage.
This happens because of the fact that often companies rush to get the first mover advantage, and as a result wind up cutting quality, service, design, great user experience, along with feature bloat and increased technical debt, and so on.
This issue is compounded exponentially if the company also does not have a crystal clear vision and concept of why to guide everything.
Later entrants into a given space are able to learn from, and improve on the shortcomings of the first mover (e.g., Facebook over MySpace), and significantly improve the solution to customer’s problems, while also providing a better experience overall.
In almost all cases when the later-mover is more successful, it is due to simplification, inclusion of only key and highly valuable features, better design, and a much more pleasing user experience overall, which includes customer service.
Executing all of the above is much easier said than done, and if you get these things right, you simply cannot lose!
Rock solid product and user experience design, simplicity, and great customer service are the keys to competitive advantage.
These key ingredients not only protect against the threat of commoditization, but also lead to very pleased and loyal customers, who not only enjoy using your products, but they evangelize them and become a part of your product’s community and movement.
Great products produce customers that are willing to pay more and give up many things (e.g., cutting-edge technology, bells and whistles, etc.) in exchange for using your products, and for being a part of your product’s user community.
This fact is critical to remember when people are telling you that your product needs more bells and whistles. If that’s the case, don’t forget to always ask why!
Cheers, and best of luck building awesome products!