KEY POINT: Being a DISRUPTOR doesn’t mean you are DIFFERENTIATED. They can fall hard and possibly fail if they don’t DIFFERENTIATE in other ways. “Strategic Differentiation” by product and service isn’t enough to differentiate today…it is a short-term strategy, not a long-term FOUNDATIONAL strategy.

KEY QUESTION: Are you falling into the trap of believing you are differentiated in your market because your products and services are unique and disruptive? 

There was a great article/post by Keith Kaplan, CEO of TradeSmith, Avoid Being Snared by Growth Traps with these 3 Red Flags. He talks about the MISCONCEPTION companies have about DISRUPTING and DIFFERENTIATING based on their products and services. Here is an excerpt from it that warrants further discussion regarding differentiation…

Growth Trap Red Flag No. 1: They Aren’t Original

The first sign that a company is a growth trap is it repackages an existing business without creating a competitive advantage.

Robinhood (HOOD) is the poster child of a poor business model. All it did was steal market share by selling a product below cost, forcing every other broker to give up profits to match its prices. Now, Robinhood has nothing to make it special.

Carvana (CVNA) is another great example. This company literally created a car vending machine so that customers could test-drive and purchase vehicles without interacting with another human being — and without having to pay the salaries of people who work in a traditional car dealership. When you stop and think about it, that’s pretty stupid. Sure, the gimmick is cool, but from a cost standpoint, the company needs to save enough on personnel costs to make money, which it doesn’t.

For the last decade, CNBC and the business world have hailed players such as Robinhood and Carvana as “disruptors.”

A better name would have been “thieves,” because many of these growth names simply stole market share.

Every single one of these companies found some temporary cost advantage or promotional point of differentiation and used that to sell products below cost in order to capture market share.

That’s why many of them have seen their shares obliterated in the last several months.

Now, there are some that sit in a gray area, such as Uber (UBER) and Netflix (NFLX).

These companies reinvented taxis and television, and they did bring key competitive edges to the table.

Uber’s software and gig-economy workforce unlocked a whole new set of efficiencies and labor in traditional logistics networks, and Netflix not only delivers original content but was one of the first to leverage internet streaming.

However, those advantages only took them so far, as both now struggle with market saturation. Netflix recently saw its subscribership decline for the first time in more than a decade, while Uber’s share of the U.S. market has tapered off to 69% since reaching 74% in September 2017.

Unless they continue to find ways to distinguish themselves from their competitors, these trends are unlikely to reverse in the long term.

Keith’s article points out some interesting facts about differentiation and disruption. His references to Robinhood and Carvana as two “disruptors” who have failed illustrate the potential trap many organizations fall into today. He also talks about how Uber and Netflix now face market saturation problems. These are examples of disruptors, but they focused on their products and services, not FOUNDATIONAL DIFFERENTIATION.

Neither of them built a foundation that went BEYOND DIFFERENTIATION™, and they failed to use the cornerstones that would have given them true and long-lasting MARKET DIFFERENTIATION. And now, they are seeing downward results by focusing primarily on their products and services.

For example, neither Robinhood nor Carvana put the emphasis and focus on creating a WOW CUSTOMER EXPERIENCE, which could have helped elevate them above their competitors. Since they were early market leaders and disruptors, they maintained their early dominance based on their products, services, and creative pricing models…all short-term solutions.

But once more competitors entered their markets, their market share and leadership position fell (along with their profits). This is a prevalent pattern for companies who believe their products and services are their primary differentiator.

Contrast these organizations with ones who make their COMPANY THEIR PRODUCT AND SERVICE, such as Zappos.com. When this happens, it doesn’t matter what product or service they sell because their customers are essentially “buying the company” when buying their products and services. They sell the “way they do business” instead of just their products or services.

Companies can escape this trap by focusing on FOUNDATIONAL ELEMENTS rather than shorter-term “STRATEGIC COMPONENTS.” For example, when a company builds a CULTURE around delivering a differentiated WOW CUSTOMER EXPERIENCE, this keeps customers coming back and telling others they should buy from them. They benefit from a LONG-TERM DIFFERENTIATOR as compared to their particular product or service, which a new or existing competitor can beat.

It also gives them resilience to commodity pressures such as PRICE, TERMS, AVAILABILITY, or LOCATION. When a competitor lowers their price, your customers stay with you because they absolutely love being treated special and enjoy the WOW CUSTOMER EXPERIENCE. Studies have shown that 89% of the audience will pay you more when you give them a WOW CUSTOMER EXPERIENCE.

Another FOUNDATIONAL cornerstone is TRUST. When you have built a relationship with your customers based on TRUST, they are far less likely to leave you for a modest price reduction by your competitor. And it’s equally important to remember, NO ONE ON THE PLANET will ever refer you to someone else unless they TRUST YOU…no one. Unless you are the lowest price and they are merely shopping you as a commodity, which lowers profitability, loyalty, and increases your risk.

Perhaps the best part is the companies that center their business based on these cornerstones get massive word-of-mouth and increased CLV (Customer Lifetime Value). And these cornerstones aren’t easily copied by a new entrant in the market or an existing competitor…giving you a long-term advantage.

In Keith’s article, it is evident that these organizations fell because they put their future into their products and services, not these other FOUNDATIONAL CORNERSTONES.

QUESTION: Do your customers buy from you because of COMMODITY FACTORS of Price, Terms, Availability, or Location, or are they buying from you because of your Company…where they TRUST you, and you give them a WOW EXPERIENCE every day?

If they are buying from you because of your products and services based on Commodity Factors, I would encourage you to learn more about what it means to go BEYOND DIFFERENTIATION™. You can learn more on my website (WOM10.com) and by continuing to read my articles and posts. Most importantly, I hope this has opened your eyes to a new (and better) way to operate your business and reap the many long-term rewards “REMARK”able™ companies enjoy today.