The ABCs of Differentiation
A simple model to think about differentiating your product
Many a team has just come out of annual planning season and is (re)working its Q1 product strategy. All good strategies are intentional responses to a given situation and the challenge(s) therein. In product strategy, the most common challenge is insufficient differentiation.
There are many mental models out there to think about differentiation, and they all seek to answer the same question: how do we make our product compelling so that customers choose it over alternatives? How do we make our product a must-have?
Differentiation essentials
Differentiation only makes sense within the context of a given customer segment, the progress that customer wants in their situation (e.g. the JTBD or problem to be solved), and a set of alternatives for achieving that progress.
You have to differentiate your product:
for a certain group of people (who)
within a market category and relative to their alternatives (where)
in a way that offers customers enough compelling value that they'll choose your product over alternatives (what + why)
ABC differentiation model
You cannot differentiate your product on everything.
It's a product trope to say the product needs to be "10X better."1 But your product can't—and doesn't need to be—10X better on everything. It may not literally be 10X better—sometimes, 2-3X better is enough. And in some situations, 10X isn't currently possible, but combining a bunch of 2-3X improvements yields a whole that feels 10X better and is perceived as a must-have.2
You want to differentiate the product on the the few dimensions of the problem that really matter, and where you can offer unique value to your customers. This means you have to deeply understand your customers and the problem, in order to identify the few things that make all the difference.
Whether 3X or 10X, the principle here is that the product needs to be better enough that it compels customers to switch to it, overcoming counterforces like switching costs, inertia, and anxiety. Be 10X better, selectively.
For the progress that your customers seek in their context, there is a subset of dimensions that matter and where your product has a chance of being truly compelling. Assuming you've done your customer research, you now want to select the few dimensions on which you'll differentiate your product.
To make sense of this, I use the ABC model of differentiation3:
Where will your product be Amazing?
Where will your product be Basic?
Where will your product intentionally be Crappy?
Where will your product be Amazing?
Your product should be incredible on a small set of dimensions that really, really matter. As economist Thomas Sowell said, "there are no solutions, only trade-offs." Good strategies make explicit tradeoffs. This is where you make tradeoffs in the product, compared to the alternatives that customers might use instead.
To be amazing at something, you have to be less amazing—or even crappy—at others. For example, Intuit's TurboTax is amazing for individuals with basic tax prep needs. To be amazing at this, it takes a standardized, form-based approach to gathering financial information. This makes it crappy for someone with a very complicated financial situation that needs high customization and a lot of discussion with a CPA.
It's not about "better or worse" in general. It's about being intentionally, selectively better/worse—in specific ways, for specific customers, for their needs in specific situations.
You can't innovate on every edge at the same time. I recommend you choose one to three dimensions, and no more than five, in which your product will be truly amazing. You might also think of them as "differentiation pillars" or “value themes.” These should be things that your competitors can't or won't want to match. Cost can be one of those dimensions if you are choosing the fundamental strategy of being the low-cost option, as SpaceX did.
Where will your product be Basic?
I’ve never bought a car because of the seatbelts. But if the car doesn’t have seatbelts, I’m not buying it.
Your product should be basic—just meeting baseline expectations—on the dimensions it must have to be accepted by customers, but which are not in any way differentiating.
You want to minimize the set of basic features. Otherwise the surface area of the product gets too big. This increases carrying costs, maintenance costs, and product complexity.
Where will your product be Crappy?
In what ways will we choose to make the product inferior to alternatives, in order to make it amazing in the ways that we choose?
This is the inverse of your choices to be Amazing. Your product should intentionally suck at a bunch of stuff that don't matter much for the thing we're trying to do.
It's often easiest to think about the A/C tradeoff as "X, not Y" or "X versus Y" such as:
efficiency versus customization
opinionated vs user-defined workflows
seamless, predefined integrations vs user-defined integrations
Contrast your product to the customers' alternatives. Make different tradeoffs. Differentiate hard on those.
Popularized by Peter Thiel's excellent book, Zero to One.
I think of this as "singular vs cumulative differentiation." For more on the idea of cumulative differentiation, see Kunle's article Subtle Differentiation (or why there are no 10x products in fintech)
I use “the ABCs” mainly because I can never remember other models. A related model used for thinking about what features will create distinctive customer value is the Kano model. I think of Kano at the feature level, and the ABC model at one level of abstraction higher: value themes (often called strategic "drivers" or "pillars"). That is, within a given theme of value, your product will have select features that are delighters ("wow"), some that performance features ("more is better"), some that satisfy basic expectations ("must have").