Building differentiation - a mental model

Building differentiation - a mental model
Photo by Randy Fath / Unsplash

Lately, I am reading a book called Different: Escaping the Competitive Herd by Youngme Moon. The book writes about why intense competition begets homogeneity. The writing resonated with me and wrote this note for my Zettlekasten. Examples heavily inspired by the author (all credit to her).

When you measure something, there is a natural human inclination to eliminating differences. For example when comparing students, the natural inclination of the students is to eliminate the vulnerabilities and become well-rounded. Picture a bar graph that shows scores across all the students subjects scored from 0–100. The natural inclination is to the see and improve “the lagging” bar where the student is low instead of doubling down on the bars that are high. Thus, we end up with a bunch of mediocre students versus students who are truly great playing to their strengths.

Thus, choosing what to measure yourself is important because measurements bring out the “herd” in us.

The above analogy applies to companies as well. Companies are bucketed into a category by its customers, analysts, markets and the company itself. Then the companies go to extremes to eliminate vulnerabilities. You end up with aisle of toothpastes that only a connoisseur can tell apart.

Death by minuscule differentiation.

We see this in the technology category as well. A plethora of companies competing to build DevOps pipelines. After a point, the end consumer cannot tell one pipeline from other. More recently, I spent a few weeks walking down the path of being a connoisseur in text editors but still cannot tell them apart. They are different but ultimately the differentiation is miniscule and doesn’t quite matter.

Think about it — does extra mint versus regular mint toothpaste really matter that much?

Excellence extracts a price. Excellence requires tradeoffs. A world class neurosurgeon cannot be a plastic surgeon at the same time. We intuitively understand that building excellence in one category requires sustained effort.

In a similar manner, true sustainable differentiation is a function of lop-sidedness and not well-roundedness. It is really about identifying your niche, playing to it and doubling down on it.

Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world — and get very good because they specialize — frequently find good economics that they wouldn’t get any other way. — Charlie Munger

This requires you going opposite the herd, ignoring the knee jerk reaction of becoming well-rounded while giving up on what makes you unique. It is about doubling down on your differentiation thus increasing the difference between you and your competition.