Start Up: Faster, Better, Cheaper…

Start-Up! is weekly column on entrepreneurship, start-ups, technology and innovation, powered by the Adams Hub for Innovation.

In business, we often hear about companies that seem to come out of nowhere to become a big success. We see it locally in companies like Bentley Systems or Click Bond. We also see the Facebook’s and Alibaba’s of the world that seem to defy the laws of traditional business growth to become the mega-companies that rival 100 year old economic stalwarts like AT&T and GM.

It is hard to fathom the growth and success of some of these companies when we consider that at some point these companies were just startups. All companies began as startups, albeit some with lots of money in the bank, but most were born from an idea by scrappy folks who believed in it, and then took it to market. What exactly does that entail?

It starts with understanding how businesses fundamentally compete. Now we all know how to shop around for things, and how to look for value in our purchases. But when starting a new business or bringing a new product to market, we need to understand how to compete on a formidable level with those that are already in the marketplace and garnering customers.

There are basically three ways to compete in business and it’s pretty simple (in theory) and a bit harder to actually implement. Competition in business breaks down to “Faster, Better, and Cheaper”. Pick any 2 to be competitive… Why pick 2? This is because if your product or service is faster, it is likely not cheaper. If a product is cheaper, it is rarely (if ever) better. If your product or service is better, it is not going to be cheaper, and so on. In bicycling “better” means better components and lighter weight. The more you spend, the lighter weight, better engineering, and higher performance of the bike.

So, companies like Porsche motorcars compete on “Faster”, as does Fedex, Jimmy John’s sandwiches, and “The General” car insurance. Interestingly though, when we hear of companies competing on faster, we don’t often hear them touting “cheaper”… why? Because society is programmed to pay for faster; we are willing to pay a premium for faster delivery. Disney allows us to pay more to avoid the lines at their theme parks. Amazon has made a whole business out of their logistics and premium service as an upsell.

Mercedes Benz competes on “better”, as do eHarmony for quality dating and Hilton for a better hotel experience. The value they provide is in the quality message. Often the message associated with quality in sophistication and status. Cadillac is a prime example of this as is Stella Artois in the premium beer space. Apple is the epitome of “better,” and their customers are staunch loyalists who believe that the company can do no wrong. How often do you see Apple products on sale? Rarely, unless the newer version is on the way, otherwise there are no Apple sales or discounts. Why? Because when you’re better, you don’t have to be cheaper!

There are many companies that advertise and perform on “cheaper”, like Southwest Airlines, Magic Jack Phone service, Expedia travel, eSurance, and others. The touted benefit for companies that compete on cheap is the “value”, and the message is that you only pay for what you want/need, without frivolous amenities that drive up the price. The problem with competing on “cheap’ is that there automatically becomes a quality assumption, and it is usually not good. When we see three products and one is significantly cheaper than the others, we wonder what’s wrong with it. Is it made cheap? Does the company not back its product? Is it going to last? These are all of the questions we inherently ask when we look for cheap alternatives to a quality product. There are ways to offset the quality question through marketing, warrantees, and testimonies. Recall that any company can compete on cheap, and if you can undercut the competition, likely others can undercut you too, and that’s a tough war to win, as margins (difference between cost of materials and product sales price) get whittled away.

For a startup, it is critical to understand how you are planning to compete against the established players already selling into the space. Find the ones that are “faster,” and figure out why they’re faster. Find the ones that are “better,” and look at why they are better (if in fact they are...). Then go out and find the ones in the space competing as “cheaper”. There will be a series of messages from each, and it’s your job to decipher the value, and see how best your company stacks up to the others in your value proposition and pricing to customers. Faster, better, cheaper? Choose your two, and begin to effectively market and grow your business.

Matt Westfield is a serial entrepreneur, founder of Entrepreneurs Assembly and Adams Hub for innovation Entrepreneur in Residence and Mentor. Matt can be reached at Matt@EA-nv.org