Price-feature paradox and the case of missing identity

On finding the right balance between business identity and driving growth. How should you choose between finding an identity and achieving a competitive advantage?

Meet Carl; Carl is in his 40’s. Carl is brilliant, deeply experienced in his professional field and is regarded by peers and close network as someone with disruptive potential.

Carl recently read an article whose variations are popping up in several publications geared towards the seasoned executives turned entrepreneurs — about the median age of a successful startup founder being 45. Carl is happy to read this; he finds it comforting because his startup, which he envisioned would take the world by storm, isn’t growing nearly as quickly as he had hoped.

So what is Carl’s problem? Or what is he doing wrong? The answer is nothing. The mistake, if any, is what we designate as a problem. The speed of light is not a problem. It is the defining law of nature. We can dream of FTL drives; we can conjure up wormholes with fictional characteristics that let us bend the laws of physics to meet our desires. But nothing we do changes the speed of light. It’s a constant. We have to work around it.

The price-feature paradox

When founders create a new business in an industry with already clear market leaders, they are often presented with a choice — to build something that beats their competitors either on price or on service coverage. Competitive advantage gets imbibed into the business plan and sometimes is even a part of the hallowed napkin paper thesis. The problem, as we talked about just now, is right here.

It is nearly impossible to develop a magic formula that beats a new startup’s established competitors on both price and service depth. Disrupting the market on price requires lowering margins that hurt profitability. Increasing feature or service depth requires breakthrough technological superiority or exponentially larger human resources. Both are highly unlikely to be at an early startup’s disposal. First, because of a lack of proprietary data to do any significant technological advancements, and second, there isn’t enough revenue to build up service personnel.

What does Carl do then? He goes for the best middle ground. He introduces a clever pricing mechanism that beats more prominent competitors on the barrier of entry from a price point and features depth on higher priced-plans.

The plan is brilliant — lure in the price-conscious buyers by offering them a cheaper alternative and convince the bigger buyers with more features or service depth at comparable price points. Where is the paradox, then?

It is right here — by implementing this plan, the new business, which does not yet have an identity, hasn’t hinged itself on either end of the consumer spectrum. There’s too much compromise at the bottom end, and there isn’t enough differentiation on the higher end.

The case of missing identity

What if the new business is disruptive enough to create a substantial variation at a higher price while being significantly cheaper to enter? What if the price-feature paradox is indeed resolved? The problem, the real problem is that the paradox remains. The paradox was never about finding an impossible balance. It was about finding a balance that still works as an identifying paradigm.

By attempting to appease both ends of the buying spectrum, Carl’s new startup has created a case of missing identity. The buyer, in the end, is always the identity-aware buyer. Jen, who has a job to procure a new vendor or tool for either her own business or a much larger corporation, isn’t looking at her budget and service requirement matrix on a spreadsheet comparing various options.

Building for resilience versus growth

So what does a new and upcoming startup business do? How does it attain the highly coveted growth rate? How does it disrupt? Growth and disruption, unfortunately, aren’t manufactured. Instead, they are the culminating point when consumer adoption reaches critical mass.

You build resilience. You create an identity based on who you want to serve and put in the toils of sweat equity. Growth is an outcome of consistency and perseverance. As a business founder or an executive in charge of taking your company to higher consumer adoption levels, you have to ask yourself; who is it that you want to sell to?

Are larger clients with more significant deal sizes a way towards shorter-term revenue flow, leading to a more distributed customer base? Or is your business better suited towards mass-market adoption at lower per-unit price points? Where in the identity spectrum do you want your business to sit?

Once a business has zeroed in on its identity, it is time to build resilience instead of striving for disruptive growth. Why? Because the chosen identity is yet still in the founder’s mind, napkin papers and business plan slides. The consumer is far from acknowledging that identity.

What does building resilience mean, and does it mean ignoring growth? While precisely differentiating the two is another day’s essay, let’s give the former a tad deeper thought.

If a startup decides its little spot in the consumer identity spectrum, it has a price and service offering in tune with that identity. It is clear who the business is looking to serve. However, our newfound unapologetic identity still doesn’t resolve the primary question — why is Carl’s startup not seeing the disruptive growth he envisioned?

Having traversed the identity-forming journey, you will find Carl asking a different question.

Now, the gripping question in his mind isn’t anymore about breakneck speed or about featuring in headlines. It is now about profitability and endurance against burnout or quickly diminishing financial runway. The challenge suddenly is being thrifty and building an offering that is the most suited to his target consumer.

His growth objective has words like sustainable, process-driven and repeatable in it. He is less worried about fighting against the behemoth and far more concerned about finding the right product-market fit, achieving profitability and digging in for the long haul. Carl’s startup is already looking like it means business.