Differentiation Strategy: Why it Matters, What it is, and How it Works.
How to build the best possible version of your business.
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I wrapped my last post with this phrase:
"Being different, standing out from the crowd, and creating enormous value is how you earn attention."
This is a perfect transition into a broader exploration of differentiation. These two concepts of earning attention and differentiation are somewhat of an obsession of mine. So much so that a) I’m publishing a book about earning attention, and b) The Department of Differentiation exists!
Attention and differentiation are inextricably linked. You can't earn attention by being boring and generic. You need to differentiate your organization, whether you’re a solopreneur, a small-to-medium business, a Fortune 500 company, a not-for-profit, or an NGO. You need to differentiate your brand, your messaging, marketing, and content, and even yourself if you want to stand alone and be noticed.
Why Does Differentiation Matter?
Differentiation allows you to determine the playing field your organization competes on. Instead of acquiescing to the status quo, you get to design everything to your own advantage.
When you're different than everyone else, by default, you have no competition, or you have an unfair advantage over your competition. This is a good thing for a business!
When you're different, people pay attention. Attention goes to things that are novel, that break patterns, that are surprising, that are unexpected. People remember things that are different. People tell others about things that are different.
These are good things for an organization!
So how, exactly, do you do this?
This is how Jenny, Debi, and I think about it at the DoD…
What IS Differentiation Strategy?
First, let's talk about what differentiation is and what it isn't.
Some conflate differentiation with positioning, but I don't think that is accurate. I think they are related and complementary, but they are definitely not synonyms.
April Dunford, who has deep expertise (and books, and a newsletter, and a podcast) on positioning, defines it this way:
“Positioning defines how your product is a leader at delivering something that a well-defined set of customers cares a lot about."
To me, positioning is about managing how your product or brand is perceived by a specific group of potential customers.
Differentiation is not about perception. It's the process of determining what you're going to position. Differentiation strategy designs a unique value proposition for a unique group of people that gives your organization a unique and lasting competitive advantage.
Differentiation strategy builds the best possible version of your business and then creates the best possible way to tell the world your story.
How Does Differentiation Work?
Differentiation strategy has two phases: the strategy phase and the creativity phase.
The Strategy Phase
The strategy phase starts with introspection and evaluation. It's a process of looking deep into your own company, finding out who you are, what you stand for, what you're offering, who you're offering it to, and how you're offering it to them. The strategic process identifies where you are exceptional.
It also explores what other options your customer base has to choose from, and what the unique value propositions are for those competitors or alternatives.
The strategy phase uses these insights to define a playing field where your company can win, either by offering something others are not, super-serving a more specific group of customers, or any of a number of different approaches to building a business with a strong competitive advantage.
The desired outcome is a business plan where your company stands alone, defined by your unique areas of excellence. Where there is no substitute because you're the only one doing what you're doing.
A simple XY graph brings this to life pretty clearly. Before differentiation, you are part of a clustered, undifferentiated field of options. The X and Y axis are defined by the leaders in your market. For fast food restaurants, it could be speed of service and price (fast and cheap). For fine dining restaurants, it could be quality of food and price, where the market leader offers phenomenal meals at very expensive prices.
After differentiation, you are alone in the upper right quadrant because you've defined the X and Y axis on your own terms - the areas that will set you apart from all other options. Back to the example of restaurants, you might attempt to do an unusual combination of axes - fast speed of service and phenomenal quality of food, differentiating from both fast food and fine dining. You might also decide on a totally different set of criteria - what if a restaurant defined itself by cook-it-yourself and dining outdoors? Suddenly, you don’t have any competition at all. (And if it’s not a good idea, you won’t have any customers, either…)
Often, this means you're choosing to be a bigger fish in a smaller pond. Sometimes, it means that you are changing the way the customer sees the overall pond.
The Creativity Phase
Now that you know your unique playing field (thanks to your differentiation strategy), you have to let the right people know what you're offering.
This is where creativity takes over. You need clear, powerful messaging, marketing, and content that tells your unique story to exactly the right people.
This is where the mindset of earning attention becomes essential. What is the way to talk about your differentiated business in a way that people instantly understand? What is the engaging story you can tell about how and why you are doing things differently than everyone else? What are the right places to tell your story?
I am using the word "story" very deliberately - this is not yelling slogans. This is not interrupting or haranguing potential customers with a hard sell.
Your story is indeed a story. Returning back to the initial strategy phase of introspection, it's the story of who you are, why you exist, who you're serving, and the differentiated way you create massive value for those people. It's telling a story that helps your potential customer see their own world in a different way. Your story must also help them feel seen because your company deeply understands their needs and challenges.
The Order Matters
You have to do the Strategy Phase first. You can't just jump to the Creativity Phase and start telling your story.
Why? Your story has to authentically come from you. It has to be aligned with every aspect of your business. it has to be true.
When the business itself is differentiated, everything becomes beautifully aligned with that differentiation. The development and/or evolution of products and services is determined by the differentiation strategy. Decisions at all levels are rooted in the differentiation strategy. And your story emerges organically from your differentiation strategy.
The Differentiation Strategy Graph
As you can tell, I love explaining ideas through graphs. So just in case I did a horrible job explaining Differentiation Strategy, here's Differentiation Strategy as an XY graph:
Differentiation Pep Talk
Differentiation is not for the faint-hearted.
Why?
By definition, you're going to be doing something that is different than everyone else. You're not going to be able to copy others, compete as a commodity, or blend in.
You're volunteering to step out of the shadows and into the spotlight. In fact, you're stepping into a spotlight you've created.
You're taking a risk. You don't know how it's going to pan out because you're the first and only one doing it.
But... there is huge upside on the other side of that risk.
You get to double down on the expertise and experience that you already have.
You get to choose what defines and separates you from others.
You get to be the best in the world in an area of your choosing.
It’s fun to be the best in the world at what you choose to do. (And it also earns a lot of attention.)
What’s Earned My Attention Lately
Being an original is hard. Differentiating yourself as an interviewer and podcaster is even harder. Bobbi Althoff has done both.
Continuing on the topic of business strategy and eyeball images, the always excellent Rishad Tobaccowala on strategic myopia and “the turd on the table.”
How to Take Back Your Life From Algorithms - an interview with Kyle Chayka about his new book, Filterworld. (It made me buy the book…)
If you’re looking to stand out from the crowd and this post struck a chord, may I introduce you to The Department of Differentiation?
We connect on similarities (we feel the need to "fit in") but we want to be loved based on what "makes us truly us": our differentiators.