Product differentiation is one of, if not the most important consideration when building an enterprise SaaS company. With a product that stands out from the market, everything is easier: your reputation and brand grow rapidly, your marketing team is armed to the teeth with great customer stories, and your sales team are fat and happy with all of the deals that they close. Without a differentiated product, you typically have to fall back on strategies that aren’t nearly as effective in order to win:
- Out-spending the competition with sales & marketing
- Undercutting your competitors’ pricing
- Differentiating in other aspects of your offering beyond your product: typically with lower-margin services and support
All of these options are expensive, infeasible, or business-weakening in the long run. Once you’ve hit product/market fit and are beginning to sell at scale, having a differentiated product is critical to outsized success.
Building a differentiated product doesn’t mean that you’re head-and-shoulders above the competition in every way, but it does require that you’re provably better than your competitors along dimensions that matter to your customers. In this post I run through one differentiation strategy that I’ve seen several successful enterprise companies use to good effect.
Expanding the Playing Field
One of the simplest and most effective ways to differentiate your product is to bundle and combine multiple product functions into a single suite.
The overall idea is simple and can be illustrated with a product like Microsoft Office:
- Microsoft Office was originally a small set of software tools that included the earliest versions of flagship products such as Word and Excel.
- Microsoft acquired products such as Powerpoint to widen the scope of the Office suite. A decade later (!), Microsoft added Outlook to own the then-nascent business email and communications space.
- In more recent years, Office added Office Communicator, and later Teams.
- Today, while Word, Powerpoint, Teams, or even Excel may not be the best products within their respective niches, the fact that they’re bundled into a single offering is a massive differentiator. Microsoft is able to compete against Slack because they bring the full weight of their office suite to bear. Similarly, Microsoft can compete against products such as GSuite because they bring a competitive workplace chat product.
This might seem trivial (do more stuff and people will think you’re more special, gee I never thought of that!) but I think that there’s value in formalizing exactly how and why this works.
Why It Works
Enterprise buyers are efficient (or lazy, depending upon your point of view). All else being equal, they don’t want to deal with procuring multiple vendors. Every new buying process requires vendor negotiations, security and compliance reviews, and wrangling internal stakeholders to get onboard. It’s significantly easier for an enterprise buyer to choose a single suite that will do everything, even if they aren’t all perfect.
There’s also a cheerleader effect where your ensemble suite will be perceived as more powerful. By expanding the suite of technologies, you force the competition to battle with you on a much wider front or an entirely different battlefield. When Slack sells into an enterprise, they pitch a vision of interconnected chat and conferencing. When Microsoft approaches that same client, they pitch a single line item that encompasses the majority of day-to-day workplace activities. Slack naturally looks weaker on this expanded playing field.
A common startup product tactic is to specialize a single feature for a niche market and use it as a wedge into a market; by combining a range of features for a single buyer and raising their expectations, you also slow challengers who seek to build enter your space.
And if one piece of your product is truly dominant (for Office this would probably be Excel), you can use it as a trump card to win difficult deals. Teams isn’t better than Slack; Microsoft Word isn’t better than Notion; Outlook isn’t better than Gmail. OneDrive and Sharepoint aren’t better than anything. But many industries near-total reliance upon Excel allows the entire suite to continue to thrive, and all of Office succeeds as a result.
Even in the best product suites, there’s usually a dominant product (Excel for Microsoft Office; Jira for Atlassian; Sales Cloud for Salesforce). The other parts of the product portfolio become a solid supporting cast, kind of like in a rock band. You don’t need to be Queen where every member of the group is superlatively strong on their own; you can be Van Halen where a superstar is bolstered by a great group of performers who keep things going (RIP).
What To Consider
If you’re constantly finding yourself fighting competitors once your product has strong traction and is well-loved, consider if there are natural options to expand your product line. When done well, this can be a strong differentiating force, creating a virtuous cycle in which you win more deals, gain more revenue, and can fund higher product quality as well as additional expansions.
To build an effective product suite, you need to bundle several products and (usually) sell them all to the same buyer. In the case of Office, Microsoft often sells to IT departments. Atlassian sells Jira, Confluence, StatusPage, OpsGenie, etc. to Engineering buyers. Workday sells to HR. Sticking with one buyer (at least initially) is important as in practice most enterprise purchasing decisions boil down to a single decision-maker. Even if your marketing product could be really powerful for sales, in practice it’s hard to get a CMO and CRO to coordinate on a purchase.
Once you’re already installed in a given buyer, this strategy gives you more and more options to expand effectively. You have access to your buyer, and you can often literally just ask them what else they care about and build it for them. I presume that this is the type of strategy that DataDog used as they expanded into Incident Response and Security monitoring – they’re just going down the list of the different needs for the CTOs whom they sell to.
A key step when combining features into a suite is that your product needs to be a strong enough contender on every dimension that you can provide a narrative of solving a wide swath of needs for one buyer (with customer referrals that back you up!). Your product suite is only ultimately as strong as its weakest member. A common mistake is to spread yourself too thin and end up with a product that checks a ton of boxes but won’t hold up in the market. Buyers tend to have a small community, and this sort of bad reputation can ruin you so make sure that you don’t dilute your focus!
- Differentiating your product is a critical step to building an enduring SaaS business.
- One strategy for differentiation is to expand your product’s functionality to expand your value for a particular buyer and simplify their purchasing decisions.
- Success with one buyer profile (CTO, CRO, CMO, etc.) is a great way to expand – by working with that buyer to understand their needs, you have a natural leg up to run product experiments to expand your portfolio.
- But don’t spread yourself too thin – the overall quality of your product portfolio has to remain strong.