How to Create a Competitive Advantage in Any Market
Establishing a competitive advantage is the holy grail for every business. Differentiating your offering is the best way for most businesses to do this since very few businesses can establish a cost advantage.
Innovation is an excellent way to differentiate but ONLY if you know how to execute innovation as a repeatable business process that consistently creates unique value; most companies don’t. Here’s what every executive should know to win at innovation.
People “hire” products and services to get their jobs done – not because of the innate greatness of the product or service. Customers only care about your product or service and its features because it helps them get their job(s) done according to their criteria for success. Do you know the functional, emotional, social, and related jobs your target customers are trying to get done with your offering?
By “job,” I simply mean a problem to solve or an objective to be achieved. A good illustration of this is the famous quote by the late Harvard Business School Professor, Theodore Levitt, who said that “People don’t want to buy a ¼” drill; they want a ¼” hole!”
I love this quote because it illustrates that customer needs are separate and distinct from product and service solutions. The “drill” is not the “hole,” the product (drill) is simply a means to achieve the desired outcome (the hole).
The product solution could be a pick, a punch, a laser, or some yet-to-be-invented tool. Regardless, product/service solutions are separate and distinct from true customer needs which, at a high level, are a job your target customers are trying to get done, such as “make a hole.” That’s called a “core functional job.”
There are other types of customer needs that are also important to capture – such as emotional, social, and related jobs, and the criteria for success on a core functional job (also called desired outcomes) – but all of them should be stated in an unambiguous word format that describes what your target customers are trying to accomplish without any reference to products or services. This ensures that you won’t be constrained by current products and services and are more likely to generate breakthrough innovations.
Decoupling customer needs from products and services offers numerous benefits. The biggest benefit that makes all the other benefits possible is that customers can now tell us what they want when we ask them what they want to accomplish rather than asking them for product or service specifications.
In other words, the belief that “customers cannot tell us what they want” isn’t true.
This little distinction turns innovation from a haphazard game of chance into a repeatable business process that can be understood, at a high level, in three steps.
First, identify and rank the unmet needs in your market which are your biggest opportunities for creating unique value (differentiating). An unmet need is an important unsatisfied need and an opportunity for new value creation. The more important and less satisfied a need is, the greater the opportunity for new value creation it presents.
Second, evaluate each opportunity and select those that are attractive to pursue for new value creation. Also, because the market opportunities are stated in solution-free language, you’ll be able to determine how to best address the most attractive opportunities, be it through new or improved offerings, messaging and positioning, organizational alignment, and/or acquisitions and partnering. Any or all four approaches can create unique value and differentiate your offering.
When you think about it, competitive advantage is created by addressing big unmet needs in the market with the firm’s relative strengths. Working through this process enables you to engineer a competitive advantage, usually through new or improved offerings, which brings me to the third step.
Third, conduct focused brainstorming to devise solution ideas that address the selected opportunities. This is very different from traditional brainstorming because you and your team have already identified the big opportunities in the market and determined which are most attractive to pursue. You’ll have confidence in these ideas because you know they address the top unmet needs in the market.
This will enable you to consistently achieve a high degree of product/ market fit at concept creation, before development, because you will have already captured the relevant market and company information upfront so that your team can bake it into their ideas.
This can dramatically enhance product development, not just because you’ll have superior information about what’s important to customers in a highly actionable manner, but because it will accelerate your learning through feature development. That’s because your experiments will test only the solution’s efficacy rather than confounding experiments by attempting to test both the customers’ needs AND the solutions’ efficacy. First, solve for the independent variable – i.e., the customers’ unmet needs – and then solve for the right feature set accordingly.
Doing this work upfront, especially in markets where it’s challenging to understand your target market’s unmet needs, quickens time to money, increases new product success rates 3-5X, and turns innovation into a repeatable business process.
This process minimizes the biggest risk of innovation – making something that customers don’t want – and enables you to make informed, data-backed decisions. Instead of relying on guesswork or intuition, you’re investing in opportunities that are validated by your customers’ most important unmet needs. With this clarity, you can confidently pursue initiatives that are far more likely to resonate, drive adoption, and deliver competitive advantage.
This process – known as Jobs-to-Be-Done (JTBD) – complements and improves all downstream activities such as Design Thinking, Lean, and Agile because it ensures that you’re focused on the right problems – i.e., the big unmet needs in the market that are highly attractive for you to pursue.
To summarize: how do you create a competitive advantage in any market?
- Identify and rank the unmet needs (your opportunities for innovation) in your market.
- Evaluate the opportunities, select those that are attractive to pursue, and determine how to best address them.
- Devise solution ideas that address the selected opportunities.
When empathy isn’t enough, try this. Yes, there’s a lot more to it than I could address here, and we can help.
If you’re ready to transform your innovation process and would like some help, let’s talk.
