Sachin Rekhi

One lesson entrepreneurs often learn the hard way is that even if they build a product that is better than the established players in the space, it doesn’t always result in them winning the market. I wanted to highlight the three most common reasons I see this occur and ways to mitigate these challenges.

The Cost of Switching
It’s costly for users to switch from their existing solution to a new player’s product and I don’t mean just in terms of any dollars spent on actually switching. Often the dollars spent is a very small part of the switching cost. Learning how to use a new product takes time - time users are often not willing to spend. Moving their data to the new product also takes time. And users often have very little incentive nor desire to try the latest solution to a problem they think they already have solved. This creates significant inertia from users to take the time to try out the latest and greatest product in the space.

This often occurs when the new product is seen as an incremental improvement of a user’s existing solution. This is why I always encourage folks to attempt to design a product that is not just an incremental improvement, but can be perceived as a 10x improvement over the existing solutions in the market. Only then will users have the appropriate justification for trying out your new product despite the high cost of switching.

It’s All About Distribution
Even if your product achieves a 10x improvement over the existing solutions, you still have the daunting task of ensuring existing users in the market find your product. Lack of a scaleable distribution strategy has resulted in many superior products never gaining meaningful market share. Even when successful distributions channels are found, they can be cost prohibitive given your business model or could be slow to ramp users.

It’s therefore as important to craft your distribution strategy at the earliest stages of your business alongside your product strategy to ensure you have a path towards a scaleable distribution strategy.

Network Effects
Many social products are obviously better because their friends are there. And incumbents benefit the most from these product network efforts, thus making it difficult for competitor products to penetrate the market. This creates significant challenges and a chicken and egg problem for users to see the improvement your product provides since you are not yet large enough to establish your own network benefit.

One way to attempt to solve for network effect challenges is to have a strong distribution strategy to quickly ramp to get to your own network efforts, but also to build single user value into your social products. This ensures that even individual users will see benefit before the network effects kick in.

Remember that simply building a better product doesn’t always mean you’ll win the market. It’s important to solve for the cost of switching, distribution, and network effects when crafting your overall strategy to win the market.