56: The coffee shop problem
During a class I was giving the other day over at Edtech, we were looking at possible risks that might affect the theoretical products we were discussing. One team of students was hotly debating the relative importance of one of the risks. They couldn’t agree how much of a problem it would be if they discovered that something similar already existed on the market. I call this The Coffee Shop Problem.
There’s nothing new under the sun #
The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun. 1Ecclesiastes 1:9, King James Version
From this verse, we’ve gained the phrase: “there’s nothing new under the sun”, which essentially means that everything is simply a rehash of what has gone before.
Uber, as an example, is not a new concept – people have been hailing cabs for hundreds of years – although it has vastly improved how consumers do so, and arguably has disrupted how taxi firms recruit and operate their fleet of drivers.
In a similar vein, a friend of mine claimed to have “invented” GPS only to find that it had in fact had already existed for decades.
So whether we like it or not, there are very few truly new product ideas. Often the innovation or disruption in a new product comes from solving the users’ problem more effectively, perhaps as a result of better materials, technology, quality of service, or a better understanding of the users’ changing needs.
In the case of Uber, one of its main benefits to users was to take the chance factor out of hailing a cab. Rather than standing folornly on a street corner in the dark and rain, hoping that a taxi would drive by, that it would be available for hire, and that it would bother to stop, the app’s GPS technology meant that the nearest available taxi could be sent to the user’s location, who could remain more happily ensconced in whichever bar they had originally been in. A more convenient and efficient approach for both the customer and the taxi driver.
Better, quicker, easier #
Back in my class, I was exploring with the team how it would affect the success of their product if they discovered that something similar already existed. Some of the team were arguing that an existing product would have already addressed the market gap, meaning that their own product wouldn’t have enough addressable market to be commercially viable.
There were a couple of reasons I suggested this wasn’t as big a problem as they thought it might be. First of all, in both enterprise and consumer software, it seems rare for a product to completely address an entire market, or even so much of it that it completely discourages new products to enter the market. There’s usually plenty of space in the market for competition.
Often the market will evolve because users start to need something different (think about software before and after social media appeared2), or because companies realise they can deliver a better, quicker, easier product more efficiently, possibly as a result of improvements in technology available. These market movements create further gaps for new market entrants.
Netflix’s business model of streaming versus Blockbuster’s rental of DVDs is a great example here – but it only became technically viable once domestic broadband was sufficient to support a reasonably quality of video. And remember that Netflix had started out by sending DVDs to customers by post, with no late return fees, while Blockbuster had resolutely been trying to entice customers to spend more in their (costly) bricks-and-mortar stores.
How many coffee shops?! #
My second point boiled down to coffee (pun intended). It’s a fairly basic product, and while there are certainly many terrible cups of coffee out there, there’s only so much you can do to improve the quality. So how is it possible for so many coffee shops to coexist, even on the same street? It’s not purely because one coffee shop sells better coffee than another.
Starbucks certainly doesn’t sell the best-tasting coffee, but it’s undeniably ubiquitous. I’m just waiting for a Starbucks concession to open in the corner of an existing Starbucks, like a Russian doll. They seem to be everywhere else.
Take the example of two Starbuckses3 opening directly opposite each other on the same busy road. Common sense would seem to dictate that they’d be competing for the same group of customers, but with the cost of running two shops, not one. Yet both could coexist happily. How?
The road was a busy one, with few pedestrian crossings. This meant that there were essentially separate groups of people walking to and from work on each side of the road. Because crossing the road was difficult for pedestrians, they’d choose not to cross over obtaining their overpriced caffiene hit. So, in only a single location, Starbucks was missing out on business from the group of people on the far side of the road. By opening on the opposite side of the road as well, they could capture this segment of the available market as well.
In other words, a more convenient (and safer) location for passers-by presented an exploitable gap in the market, even though the product was identical and there was seemingly strong competition (from the original Starbucks).
Where does differentiation come from? #
Countless times I’ve cringed as I’ve listened to clueless marketeers declare that their product stands out from the competition solely because it’s newer, shinier or uses a more hipsterish typeface. The product may have been superficially different, yes, but was no better an alternative for the users.
True market differentiation is when a product stands out from its competitors because it meets the needs of its users better than the alternatives available. That’s why it’s perfectly possible for multiple coffee shops to coexist on the same street because they often are catering for different needs.
One coffee shop may be geared towards quick service for people in a rush and have little seating space. Another one may encourage customers to linger and buy several drinks by providing comfy seats and good wifi. Yet another may have artisanal pastries as the main event with coffee as a sideline.
Within the general market segment of “coffee drinkers”, there’s still the potential to subdivide into further segments – but this only comes from understanding their needs more fully. If most of the passers-by are rushing to get somewhere, then the coffee shop designed for lingering is probably going to remain resolutely empty. You get the idea.
To successfully differentiate your product from those of your competitors, you first need to understand your users and customers better than your competitors are doing. When you can solve your users’ problems better than your competitors are doing, the competition becomes irrelevant.
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