To Build a Successful Startup Start with Positioning
A step-by-step guide on how to put a Positioning strategy in place
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Positioning is one of the most under-appreciated topics in SaaS. I get blank stares when I start talking to founders about why they should care about how they position their product.
Recently, I shared my simple framework for creating a go-to-market strategy. The reason why your positioning is so important is because it has an effect of every element of this GTM framework.
Let’s start with the basics, i.e. a definition:
Positioning defines how your product is a leader at delivering something that a well-defined set of customers cares a lot about.
— April Dunford
Now, let’s compare the basic GTM framework against this definition:
You have:
Market
Product
Distribution
Monetization
Or again:
Positioning defines how your product is a leader at delivering something that a well-defined set of customers cares a lot about.
Product = hopefully clear
Delivering = distribution
Well-defined set of customers = market
Care = value = monetization
The value of the positioning exercise comes in the fact that it pushes you to consider all these aspects of your GTM.
And once you have worked on it, it serves as a prop, to help you figure them out.
So, your positioning and GTM are inextricably linked together.
When is the right time to create a Positioning?
I live by the word of the one and only April Dunford, but this is an area where my opinion differs from hers.
In Obviously Awesome (read it!), April argues that very early stage companies should go for a broad focus and just try and get as many different customers as possible before they use the learnings to define their positioning and niche down.
This is a solid approach, but it assumes positioning is mostly an exercise in defining a narrow audience to go after.
However, I believe that doing the exercise can be valuable even to pre-P/MF companies.
It can serve as a way for the founding team to think through who they want to serve and how and use that to align their product roadmap early in the lifetime of the company.
In more extreme cases, it can help get the founders on the same page. Especially when there’s unspoken (or maybe even unconscious) disagreement about the basic elements of the GTM (the usual culprit is the market/target audience they want to go after).
So, in short, positioning is a lot like the Chinese proverb about planting a tree:
The best time was a long time ago. Second best is today.
With that at mind, let’s go to the juicy bit – how to create a Positioning strategy.
How to create a Positioning Strategy
I have to keep giving credit to April and her book – I have used the framework outlined to deliver and run several positioning workshops for SaaS companies.
What follows is a distillation of what I’ve learned from that.
The Positioning Framework at a glance
In short, these are the steps you need to go through to build your Positioning strategy:
Competitive Alternatives: How are people going to solve their problem if your solution doesn’t exist?
Key Unique Attributes: For each of the alternatives, what are the key features of your product, which make solving the challenge a lot easier using it.
Value: What is the specific value each of these features is enabling for the people using your product.
Customers: Who are the people who care about this value – very important to get to a narrow definition/group at this point.
Market/Category: How do you define the market in which you operate.
Let’s explore each of the elements in more detail and then we’ll use the framework to build a Positioning strategy for a made up company/product.
Competitive Alternatives
If you’re building the correct way and starting with a proven market need, you should be aware that people are already solving their problem in some way.
For any given SaaS product, your biggest competitor is the spreadsheet.
I’ve worked with products in time tracking, subscription analytics, project management, and more. For 99% of them the biggest competitor has always been someone sitting in front of a white screen with lots of cells on it.
Which brings me to... Your alternative might not be a what, but a who. Often menial tasks which are a good candidate for (being turned into a) software are first handled by an intern or a VA.
Another alternative is not doing it at all. Or just using something completely off the mark to kind of do it. A product like ChartMogul gives you key SaaS metrics at a glance – but maybe you don’t need to look at your LTV and you can get a feel for your MRR and Churn from your accounting statements (just thinking about this makes me go 😬).
Finally, you have competitors. SaaS has become saturated enough where you probably have a few direct ones, but it’s important to consider the indirect ones as well.
At Toggl, one of the challenges we were facing was a trend towards commoditization of time tracking. Meaning that a time tracking feature was suddenly available everywhere (ClickUp, Monday.com, Asana) and people no longer felt compelled to buy a separate tool to do it – what they got in their project management tool was good enough.
Key Unique Attributes
Once you have a few alternatives in mind (I tend to suggest considering 3 – spreadsheet, manually, a specific direct competitor), the next step is to figure out what are the unique things your solution offers which makes it a better way to do the same work.
Usually, this will generate a list of features – some repeating between alternatives, but some unique to each.
What’s important to consider here is whether a feature is a true and unique advantage or just a tactical fad.
In a recent workshop I did with a client, we identified as one of the features that a direct competitor were asking for handholding and dev work during the initial onboarding process. Upon closer inspection, we realized it’s just a tactic to get each new lead to talk to the Sales team – and thus something that can easily be scraped – so we decided to remove it as a distinct advantage for their product.
Value
Once you’ve identified the key features that differentiate your product, you have to take a step further and understand what is the value they create for your customers/users.
And when we talk about value, I always preach getting as close as possible to the real meaning of the word and away from the hand-wavy this is why people care stuff.
In other words, can you quantify the value you’re delivering? (Remember that this will be extremely useful to you when you need to come up with a monetization strategy.)
Sometimes it’s as easy as “Our accounting software will save customers the need to hire 1 accountant, which between salary, benefits, and taxes is worth at least $10,000/month.”
We don’t even need to take phantom costs such as the share of a manager’s salary that will go into managing/mentoring, setting KPIs, holding 1:1s, etc.
But more often than not, it’s not that easy. The costs are a lot less clear.
Customers
Who cares about this value? In this step, you are aiming to define a focused group of people who will constitute your (short-term) target market.
The most important thing here is to go beyond 18-35-year-old males in big cities in the US. Dig really deep to narrow down and define your audience in a way that makes sense and will allow you to go after them in a concerted effort.
Sometimes it will make sense to define them in a very narrow industry terms, i.e. people who work for design agencies. But in other cases, the definition might be agnostic of a specific industry vertical.
For example ClickUp’s main value proposition is that you can combine all the tools that you need into one and only pay for one thing. This is a powerful proposal, which appeals to multiple industries, teams, and use cases.
This is fine, just keep in mind that you still need a way to connect with this audience. If they’re defined too broadly and have no single place where you can meet them, your task becomes harder.
Market
Defining the market category is the last piece in the positioning puzzle.
You might ask “how is this different from the defining the customer?” And you’ll be right.
In this case, when we talk about market, we think more about the label we slap on our product.
What’s the point of that?
To give our target audience a mental shortcut and help them decide where to put us. “Oh, so this is a new type of project management platform for agencies.”
Having an oven-ready category to tie your product to gives you a quick way into the mind of the customers – they can understand right away what you are and decide if you are for them.
Having a standout feature or selling point (project management for agencies) is a quick way to differentiate and command a share in such a market – even when you have big incumbents.
Another way to go about this is to build an entirely new category. This is a high-risk, high-reward strategy. The execution is very hard, you have to educate your market about everything: what to call the new category, why they should care about it, etc. But if you manage to pull it off, you command the lion’s share of a new big market with some time to exploit it before others catch on.
Just a word of caution on new categories – rarely it’s the first mover who owns the category. Think MySpace in social media.
Let’s build a Positioning Strategy!
We’ve gone through all the steps, but I suspect that might still be confusing. So, let’s try and use the framework to build a positioning strategy using a real-life (not really) example.
Let’s say I’ve built a software to help companies with bean counting. I’ve decided to call it BeanCounter.
Descriptive? ✅
Original? 🤔
How would I position it?
Let’s just follow the steps and see what we end up with. Along the process, we’ll also be filling out the Positioning Canvas, which is also inspired by April’s book (you can get the full set of worksheets from all of her books when you subscribe to her newsletter).
I’ve also created a Google Docs template, which you can duplicate and fill out on your own.
Competitive Alternatives:
As with most software products, there are 3 major alternatives when it comes to counting beans:
Spreadsheet: The humble spreadsheet is a good-enough way to count beans
Manually: You can hire an intern (poor soul) to count the beans for you
Bean there, done that (OK, enough puns): Specialized enterprise-grade ERP software that has a feature to count beans as one of countless other functions. It works, but it’s not a huge innovation when it comes to bean counting.
Key Unique Attributes
The next step is to take each of the alternatives and compare it to your solution – what are the features which make your product a much better way to count beans.
Spreadsheet: Your product records each bean with a unique identifier and thus makes sure you can’t count one twice, providing more accurate account of the number of beans you possess as well as cutting down on the time spent recounting.
Manually: Counting beans by hand is tedious and error-prone. Using software allows you to both save time doing it and ensure a higher degree of accuracy.
Enterprise software: The software is old, clunky, and costs a ton of money. In addition, it’s not build for bean counting, but only does it as a (minor) feature – meaning its reporting capabilities are not as good as with a specialized product.
At this step, we’ll try to narrow down the list of features to a few (usually 3-5) groups. In our case, it will look something like this:
Save time
Ensure accuracy
Reporting
With this at hand, we’ll now try to understand what is the actual value generated by these features.
Value
Discussions around value tend to be extremely subjective, so I always preach the need to connect declared value with an actual objective representation.
The best, of course, is money.
Naturally, that’s not always possible – sometimes both you and your customers know the value is there, but it’s not possible to get to an exact number.
What would objectifying value for bean counting software look like?
Time saving
Counting beans manually or with the help of a spreadsheet does not save the need to hire someone to do it. Companies who follow this approach, tend to hire at least 1 FTE to do the job.
Between salary, benefits, and taxes, hiring one professional bean counter comes up to at least $50,000/year in direct costs.
And this excludes the share of costs from the time it takes a manager to hire, manage, have 1:1s with the employee, etc.
Accuracy
Companies that employ manual methods to count beans tend to overstock at least 20% due to low levels of accuracy.
If a typical company requires a stock of 1m beans per year and beans cost 1 cent a piece, that means ~$2,000/year in unnecessary expenditure on beans.
Reporting
Data generated in the process of bean counting can be used in various ways.
Management wants to understand the use of beans and ensure quantities are not wasted. Requests have to be made to Procurement when the beans stock is running low (and ideally before it runs out).
Without advanced features, generating reports to help with this can easily take a professional accountant/finance person 0.5 days/week or 2 days/month.
Provided a month has 20 workdays on average (I know it’s a bit more, but I’ll use the round number for ease), this means 10% of the work time of this said finance person.
From this point, it’s easy to quantify the cost – if that person costs the company $5,000/month, then the value of having this reporting features would be around $500/month.
But these reporting attributes have other benefits – which are harder to pinpoint in monetary terms.
They can help you figure out who the best bean counters are, thus allowing you to reward and promote top performers. And they can also signal when it’s time to hire another person or reorganize your finance team to allow them to handle a higher volume of work.
The effect of this would be keeping morale high and avoiding people burning out and leaving because they don’t feel recognized.
We all know there’s real value to this and some of it – like the cost of hiring a new person to replace someone who’s quit – may even be quantified. However, getting to that value can be a hard and tedious process.
Customers
OK, now we’ve figured out what the value our product is creating is, let’s try to analyze who really cares/benefits from that value – thus, we’ll have our target market defined.
We discussed how our target audience cares about the time savings and accuracy in the bean counting process.
We see that we’re particularly popular with companies on the smaller end with <1000 employees that do not use a dedicated ERP system. Many of those are in old school industries, some fall under government – a ripe territory for bean counters. Because of that, they have to go through a very large volume of beans, typically anywhere in the 1m-10m beans/year bracket.
In order to achieve our growth target for the year, we need to close around 100 customers in 2024. The way we’ve identified the market so far, there are 1000s of companies that fall under our criteria.
So, in reality, we can continue to dig down and define the customers even more narrowly – this will allow us to be a lot more focused on both marketing and developing the product in the short term.
Market/Category
We have defined the category of our product as Bean Counting Software.
Is it a new category? Yes, it doesn’t exist on G2:
This is both tricky and exciting – we have to educate build new circuits in the brains of our target customers and teach them about the need for bean counting software.
But if we manage to, we have a good chance of commanding a good share of this new category.
Can we nestle inside an existing category?
Perhaps, yes. ERP looks like a good candidate.
But I would advise against it because we don’t have clear P/MF within that category.
Remember that category labels serve as mental shortcuts for our customers – they allow them to quickly place us on a shelf of what we are and whether we are for them.
So, even if you say, “we’re an ERP for bean counters”, they would still need to see a range of functions that typical ERP systems do.
You have your first Positioning Strategy
This is what we end up with when we fill out the Positioning Canvas:
So, what now?
You have 2 paths ahead of you:
You can take what you’ve learned and start using it to make changes to your GTM.
For example, the analysis we did in the Value part, can guide you when you’re figuring out your monetization strategy. (More on this in a future edition of the newsletter.)
The most usual first culprit is the homepage – to align the messaging and targeting with what we learned about customers during the process.
OR, you can go back and try to further validate your learning with your customers. For example, you believe you’re saving them at least $50k/year – go and ask a few (prospective) customers if they would be willing to pay $50/mo for your software? What about $1000/mo?
Need help with your positioning?
Working on your positioning strategy can be overwhelming.
If you can use a hand or just want to run things by someone, book a session with me – the first call is completely free!