Equipment for Services
How can an upstart company enter a market dominated by an incumbent? How does it explain its (oftentimes complex) service in a way that a potential customer can understand and also see the benefits over the competing solution?
This is a question faced by most startups and one that I needed to answer for a European provider of voice, television and broadband services in the summer of 2007.
Instead of directly competing on price and features, I developed an "Equipment for Services" product offering and service architecture that also served as a market entry strategy for this startup.
The product was a hybrid telecom service designed for small and mid-sized firms in Dublin Ireland. The product was comprised of standard telecom features such as international calling, conference bridges and remote offices. While it was assembled from such "standard" telecom pieces, it was presented to customers in a non-standard way: as a no-risk way to obtain work-from-anywhere flexibility and large-company conveniences such as voicemail delivered by email.
The Business Model
The Equipment for Services business model took advantage of the separation between a customer's wants and needs. In this startup's market for telephone and internet services, the small and medium sized business customers needed telephone and internet services but actually wanted the convenience of a modern communication system, simplicity of a fully managed and turnkey solution and security of an established, large provider. In my discussions with these customers, price was never a top consideration. These customers were motivated by convenience and a desire to present themselves as larger firms with more capable operations to their own customers.
The security requirement was actually risk aversion these customers had to a small, fragile startup. When they said, "we need a reliable service," what they actually meant was "we don't believe your company will survive."
I satisfied this security requirement by using a service architecture that allowed the customers to retain the incumbent provider for basic telephone services and also obtain the benefits of convenience, simplicity and perception of being a larger firm from this startup company. This architecture eliminated the requirement (and inherent risk) of the customer making a complete switch from the incumbent to the startup. It allowed the startup to enter the market with a unique product that the incumbent could not immediately match or compete against by simply lowering prices.
The technical solution to this problem used the Asterisk open source IP PBX software and commodity computer hardware to create a remotely managed, on premises, inexpensive switch that the startup could offer free of charge in exchange for the customer subscribing to telephone and internet services.
Marketing the Solution
Convenience and flexibility were the business customers' desires. To market the "Equipment for Services" product, I needed to speak in the language of the customer, using terms they understand and benefits that are meaningful to them. The words, "Asteirsk", "Remote Office", and event "Telephone" are irrelevant to the customer and should be avoided.
Instead, I explained the service in ways the customer will appreciate.
There is a big difference between the technical description of the service, as shown in the architecture design above, and what is actually communicated to a customer.
This "Equipment for Services" product competes indirectly against the incumbent telephone company without actually competing on price. Instead, it competes by satisfying the needs of the customer.