When entering an established market, you have to worry about switching costs, or the costs required for a customer to switch from a competing product to yours.  These costs vary based on the nature of the switch, whether they’re intangible (brand to generic) or tangible (cash spent to switch database vendors).  When starting out, think about the switching costs you will ask customers to make, and why it makes sense for them to buy your solution despite the extra expense.  Some companies go so far as to pay the switching costs to get customers to change.

When thinking about switching costs, one rule of thumb is that your value proposition needs to be at least ten times better than the competition.  For example, if you introduce a new email program with better spam technologies, it needs to be 10x better at blocking spam.  If you want to start a consulting business, you’ve got to be 10x in your area of expertise.

10x can be hard to quantify, so just make sure that your offering needs to be significantly better.  If it’s marginally better, people won’t switch.  Regardless of the product or service, don’t rest until your value proposition dwarfs your competition.

Matt Sand

Author Matt Sand

Passionate about making a difference through innovation and entrepreneurship.

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