[fdschoeneman]

A couple of short pieces of advice. This is a tactical sales problem, not one of strategy or positioning. It sounds like your strategy is just fine. Do your best to at least slow down his decision cycle (keep him from making a bad decision for his organization) which prevents your low-flying competitor from early success. You can do this by offering a very limited version of your product for him to review that matches your competitors features, or ask to delay the decision until you've had a chance to show your product to other stakeholders. There's some chance the buyer is simply using the other company as a negotiation tool to get your price down.

In which case, ignore it. Find the customers who see their problem clearly, and why your specific solution takes care of their needs better than anything else, an concentrate your efforts on them.

Also, if you haven't read SPIN Selling by Neil Rackham, consider doing so when you get some time.

Good luck!

[skmurphy]

Not enough data to determine if it's a tactical problem or a strategic problem. It would be interesting to hear the "tiny startup competitor's" perspective. They sound a lot like the early cisco. If the poster can't find a feature/benefit that segments the market away from this low cost provider so that his feature set no longer qualifies, it's not clear what stops them from taking this win and continuing to prosper at his expense.