How to Truly Differentiate Your Business
When it comes to people who value businesses, arguably there is no better valuator than Warren Buffet – the most famous investor of all time. One of the things he looks for when he makes an investment when he makes the decision to buy a company is that he is looking for companies that he calls a deep and wide competitive moat around them. Why? Why does Warren Buffet care about how deep and wide the competitive moat is around the companies that he is considering investing in?
What it comes to is when you’ve got marketing differentiation, when customers believe what you’ve got is truly differentiated, it gives you pricing authority. Then when you have pricing authority, it means that (within reason) you can set the price for what it is that you sell. When you have control of your pricing, it gives you better margins. Guess what? Better margins leads to more marketing dollars. More marketing dollars allow you to invest in more sales and marketing, it allows you to differentiate your product even further, which gives you even more pricing authority!
It starts to build on itself to having this “deep and wide competitive moat” where it becomes very difficult for a competitor to compete with you because you’ve got real marketing differentiation
So, the value of your company is tied to how well differentiated your business is in the marketplace. Acquirers don’t buy something they can easily replicate. They buy things that are truly differentiated. If you have a product or service that is a commodity, that they can easily replicate by undercutting your pricing, they are not going to buy your company, they are just going to set up to compete with you. However, if they look at your business and say there IS some secret sauce there, there is a competitive moat that we need to cross in order to compete with this company, that is when they get VERY interested in acquiring your business because you have something that they cannot easily replicate.
So the next question you are probably asking is:
“how do I truly differentiate my business in the marketplace to make it as valuable as possible?”
There are really two main ways to differentiate your business.
- You can come up with a better mousetrap. You can create some technology and you can protect it so that you truly have something that is a better mousetrap – something that is a differentiated piece of technology that separates you from the rest of the competitors. Now not everybody has a better mousetrap, but you can still differentiate your company.
- The other way you do it is through better marketing. For a marketing strategy to have teeth, to be truly differentiated, it has got to have two factors.
- It MUST be something that makes you unique.
- It has GOT to be something that customers care about
So as you are thinking about marketing a point of differentiation, something that has the potential to give you that “monopoly control,” what you are looking for is something that meets these two criteria. It has to be something that makes you unique, and it has to be something that people care about.
So to figure out how to differentiate your business, plot these ideas on a simple X and Y axis as to how well differentiated it is, and to what extent customers care (shown in the image below). You are looking for the attribute that gets up into the top right-hand corner.