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.

[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.

[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?

[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.

[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.

[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.

[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.

[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.

[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?

[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.

[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.

[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.

[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.

[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?