I had a discussion with a group of product managers recently about differentiation and product strategy. We were reviewing my previous post, “How to Pitch Your Idea for Investment,” and we were discussing the concept of “winnable by us.” When you’re building a new product, it’s important to understand why this market opportunity is winnable by us. In other words, what do we have that’s a differentiator — either proprietary or first to market — that will allow us to effectively compete.
In that post, I mentioned this about differentiators:
The key with the proprietary differentiators or the first-to-market features are that they need to be valuable to customers. It’s no use for a company to have a bunch of proprietary differentiators, or to introduce first-to-market features, if the customers don’t care about them.
In this post, I wanted to go deeper with the concept of differentiators, and discuss a framework that you can use to pick winning features for your product.
A Framework for Picking Winning Features
When considering possible product features, you should analyze the feature from two angles: (1) customer value, and (2) is it unique?
- Customer value: How important is the need that this feature would address for the customer? Is it high value (addresses a critical need), or low value (nice-to-have)? Will the feature address a scalable critical need across most customers, or is it a niche feature that only appeals to a small handful of customers?
- Is it unique?: Do any of the direct or indirect competitors in the market already provide this feature? If you include the feature in your product, would it be unique?
Once you have analyzed the potential feature from these two angles, you can use the visual framework below to understand whether it’s a winning product feature.
You always want to build products and features that are in the top half of the quadrant (high customer value). If you’re in the lower half of the quadrant, your product/design/eng resources can be better spent on other features.
If something is of high customer value, but not unique in the market (meaning that most competitors already offer it), then it’s “Table Stakes”. These features are extremely important, and are the cost of doing business because customers value them and expect them. But they are not going to set you apart in any way.
As much as possible, you want to be in the upper right quadrant — high customer value and unique (meaning that most competitors don’t offer this today). Then you have found a true “Differentiator” that you should consider investing in from a strategic standpoint.
The lower right quadrant is something that is unique in the market (most competitors don’t offer it today), but it’s also low customer value. This is a “Who Cares?” feature. To the point above, this is a trap that a PM (or a startup) can easily fall into — chasing products and features that are “differentiated” and unique in the market, but are not valued by customers. We always need to invest in differentiators that are high customer value and unique.
Waste of Time
The lower left quadrant is to be avoided as much as possible — low customer value and not scarce. These are “Waste of Time” features, and are probably the worst kind of features. Why? Because you’re tempted to chase these features in an effort to maintain competitive parity, but they don’t move the needle for customer value anyway. If you over-rely on sales or even customer input (without understanding the “why?” — is this feature really valuable to the customer?), then you’re likely to include at least some “Waste of Time” features.
So what are the implications of this framework?
- You always want a mix of Table Stakes and Differentiators. Sometimes, when you’re entering a market where customers have existing expectations, it’s tempting to focus entirely on Table Stakes. If you’re only building Table Stakes features, everything you’ve built is also available with competitors (not unique), and there’s no compelling reason to buy your product — other than maybe price. So you will commoditize yourself if you’ve only build Table Stakes features. You will never be able to command a premium price, you will always be subject to intense competition. Not a winning strategy in the long-term.
- Can you turn a Table Stakes feature into a Differentiator? It’s ideal if you can pivot features that are considered Table Stakes into being somewhat of a Differentiator. It’s important to ask yourself every time you’re considering a Table Stakes feature: is there anything we can do to put our own twist on this to make it unique and valuable?
- As an example, when Apple introduced the iMac in 2001, computer monitors were considered Table Stakes. The Apple team asked themselves what they could do to take the Table Stakes feature — a gray, bland computer monitor — and make it unique? In doing so, they appealed to design-conscious consumers who appreciated the aesthetic and ability to personalize their computer monitor.
- They were able to take something that is high value to the customer (monitor) but at the time was a Table Stakes feature, and pivot it to make it unique and turn it into a Differentiator. And hence, they were able to compete the with multitude of commodity PC makers out there.
Proprietary v. First-to-Market Differentiators
A Differentiator can either be Proprietary or First-to-Market. The key difference between the two is whether the Differentiator is easy to replicate or not.
What makes a Differentiator difficult to replicate (proprietary)? Some examples include:
- Valuable proprietary data
- Algorithms, trade secrets, patents
- Established brand
The more Proprietary Differentiators that a company has, the harder it is for competitors to replicate, and the longer the company can operate in a market without facing direct competition.
Having First to Market Differentiators are also valuable. As I wrote in “How to Pitch Your Idea for Investment”:
This is the classic “first-mover” advantage, which can enable a company to build up an installed base of customers, build its brand and strategic position, and set the standards and expectations in a new market. This first-mover advantage can become especially powerful when there are high switching costs for customers, or when there are network effects to a business.
But I would always choose Proprietary Differentiators over First to Market ones. The reason is that if you only have First to Market Differentiators, unless your execution is perfect and your competitors are asleep at the wheel, the competition can eventually catch up to you.
As product managers and entrepreneurs, our job is to pick winning features for our product. In this post, I’ve provided a framework for doing just that. You start by analyzing the customer value v. uniqueness of the potential feature. Focus on high customer value features (upper two quadrants of the framework — a mix of Table Stakes and Differentiators). Avoid building only Table Stakes features, and think hard about whether you can convert a Table Stakes feature into a Differentiator. Avoid the classic startup trap of building Who Cares? features — differentiation for the sake of being different, but that are low value. And also don’t be swayed into chasing parity Waste of Time features just because they already exist with competitors, but are really low value. Finally, when considering a Differentiator, identify Proprietary ones over First-to-Market ones if at all possible. If you use these frameworks, I’m hopeful that you will be better able to pick winning product features.