Strategic Solutions To Small Business Problems: Differentiation

This is part of a series of articles on strategic solutions to small business problems.

PROBLEM:
Lots of entrepreneurs start their businesses because of an interest or skill in delivering a service, or because they want to monetize a hobby, or because of a desire to take control of their financial future. Unfortunately, acquiring customers (and then acquiring more customers) can be a challenge and one of the reasons that small businesses struggle with this is because of a lack of differentiation.

When a business looks too similar to its competitors, it is not differentiated enough and won't attract customers. Some entrepreneurs might feel, "if it works for my competitors it will work for me", but this is a business-killing mindset because it destroys customer loyalty. If customers feel that they can get the same service whether they shop at store A, store B, or store C, they will barely notice if store D shows up on the scene to offer similar services and then folds later.

SOLUTION:
A lack of differentiation can be a challenge for businesses. Fortunately, there are tools that businesses can develop strategies to differentiate themselves. One strategic tool was introduced by W. Chan Kim and Renee Mauborgne in the book Blue Ocean Strategy.

Kim and Mauborgne talk about the red ocean that most businesses compete in and then discuss the blue ocean that differentiated (and successful) businesses compete in. Then, they present a tool to help businesses move from the over-crowded red ocean to the opportunity-rich blue ocean.

The tool is called the "Strategy Canvas". Along the bottom of the Strategy Canvas, users list measurable categories practiced by businesses in the industry. These categories might include general categories like price, customer service, quality, as well as industry-specific categories, too (like meals and lounges in the airline industry or vineyard prestige in the wine industry). Then, users chart the industry players, comparing how some deliver varying combinations of the categories. Users also compare their own business with their peers.

Charting the current industry conditions highlights how businesses are competing. If they want to move from a lower-priced provider to a higher-priced one, they might need to increase how they deliver in each category. But doing that still only leaves them competing with others.

The concept of Blue Ocean Strategy suggests that businesses can add new categories – once that are not used by competitors – to move from the highly competitive red ocean into the preferable blue ocean.

EXAMPLES:
In their book Blue Ocean Strategy, Kim and Mauborgne highlight several examples of blue ocean strategy in practice, including Southwest Airlines, Yellow Tail wine, and Cirque du Soleil.

Another example might be one company who saw that SMS and blogs could be combined to create the microblogging phenomenon we know as Twitter.

APPLICATION:
So, how can you put this into practice?

1. Start by listing the categories in your industry that you compete on.

2. Compare how industry competitors are delivering combinations of those categories. Are they delivering higher amounts of (and investing higher amounts in) a certain category but ignoring others?

3. Then, determine additional factors not present in the industry.

4. Create a new combination of existing categories and new categories that competitors do not possess.