How to create defensible differentiation in your SaaS business?

How to create defensible differentiation? It’s one of the most valuable questions to answer for a SaaS founder.

Here’s why:

If your product is hard to copy:

You have a market access advantage over alternative solutions
You have a resource advantage over alternative solutions
You have a price advantage over alternative solutions

Defensible differentiation is what I always look for in my (re)positioning projects. Because what’s positioning worth if a competitor can ‘catch up’ just by changing some words?

My golden rule: The most potent positioning is when your ideal customer’s reaction is: “I need this!” and your competitor’s response is: “We’re in trouble…”

But there’s a trap. Defensible differentiation is worth nothing if it can’t be linked to value. In other words – your solution can be differentiated with 20 patents because of some unique design or approach. Still, if your customer can’t bother about the value it creates, it doesn’t matter.

Everything starts with value. From there, you build the defense layers:

Value -> Differentiated value -> Defensible Differentiated value.

Question for you to reflect upon

On a scale of 1-10, how difficult will it be for your competitors to match you in delivering your unique value? Where’s your opportunity to get to a 10?

What is defensible differentiation?

As I was writing my essay about defensible differentiation, a couple of people asked me: What are the typical mistakes SaaS companies make in search of Defensible Differentiation?

To answer that, let’s first define the term:

Defensible differentiation in SaaS refers to unique features, services, or other aspects that set a SaaS business apart from its competitors and that cannot be easily replicated.

Although the definition is clear – still many mistakes are made. So back to the question:

What are the typical mistakes SaaS companies make in search of Defensible Differentiation?

Here are the five I see most:

Shiny objects: Many SaaS companies think their differentiation is in launching something in the “latest technology bucket” – just see all the ChatGPT announcements.
Segmentation: Many aim too wide – thinking their SaaS suite fits customers large and small. They fail to identify the customers prepared to pay a premium for their differentiation.
Positioning: The differentiation and focus is there but doesn’t give a competitive advantage, i.e., they fail to articulate in concrete terms what makes them incomparable to alternatives.
Messaging: Many have defensible differentiation but forget to clearly communicate why the right customer should care (as if those organizations can connect the dots themselves).
Resourcefulness: The differentiation weakens rapidly because too much time and resources are dedicated (and lost) to fixing unimportant weaknesses instead of strengthening the strengths.

As Jason Cohen, Founder of WPEngine, states in his long-form blog: Leveraging strengths – not “fixing weaknesses” – is how to win. Better when differentiated. Best when durable.

Key takeaway: Defensible differentiation is only of value if you leverage it

Question for you to reflect upon:

Where’s the most significant opportunity in your SaaS business to leverage your strengths if you look at these mistakes honestly?

Don’t obsess over product. Obsess over approach

The big AHA moment in my career: Don’t obsess over competitors’ products, but their approach. In the ERP world, we faced countless competitors—SAP, Oracle, Microsoft; you name it. Were we scared? No longer when we changed our perspective.

The common trap is being awed by their size. It’s easy to think you can’t compete with their extensive solutions. But that mindset leads to negativity: blindly following, irrelevant bashing, and lowering prices.
Remember, customers aren’t interested in competitors; they seek unique problem-solving approaches. That’s where the opportunity lies.

Functionality alone doesn’t guarantee success. Two solutions may have the same features, but outcomes differ.
The key is understanding the problems you excel at solving and finding customers willing to pay a premium for it.

By embracing this approach, we shortened deal cycles, raised our win rate to 80%, and eliminated discounts.

Lesson: Shift focus from competitors’ products to their problem-solving approach to win more business.

Question for you to reflect upon

What if you stopped obsessing over product similarities and started emphasizing your unique problem-solving approach?

If it’s not about your product, but your approach – what could you leverage in respect to this? In the coming paragraphs, I highlight some of the ingredients that I’ve seen do their magic.

Ingredient #1: Magic concepts – the DNA of your SaaS product

One of the most potent ingredients to create defensible differentiation is the DNA of your SaaS product – I refer to that as your Magic Concepts.

Magic Concepts articulate your approach to solving a significant problem. Very often, it comes alive in the architectural choices you’ve made / you make that underpin your SaaS solution.

Let me give you an example from the product suite I’ve been responsible for – Unit4’s ERP.

Where all the well-known vendors (SAP, Oracle, Microsoft,…) took a traditional approach around processes, Unit4’s ERP lends its defensible differentiation from how it designed its information model underneath the application.

At the surface level, one might think, ‘Who cares’ – but that approach made it extremely powerful for large service-centric organizations to drive ongoing change: M&A, reorganizations, financial management-driven change, regulations, etcetera.

In product-centric industries, change is not that much of a thing (in fact, if you manufacture a car, you don’t want three new models per quarter). But in Service Intensive industries, change is non-stop because it’s about people, projects, services, and all the dynamics that come from that. So, design matters. Unit4 customers could deal with change in minutes without operational disruption, whereas alternative solutions required armies of consultants and weeks/months of effort.

That’s competitive power for customers.

And just that design made our differentiation very defensible – I.e., if competitors wanted to claim the same value, they’d had to build their solution again, from the ground up.

Leverage that in your positioning, and you’ll become the worst nightmare for your competitors. So, that’s what we did – to the effect that those competitors we used to shy away from started to qualify out the moment they realized we were in a particular deal. I can tell you – that feels magical.

Question for you to reflect upon

What’s the magic concept that underpins the strategic value of your SaaS suite?

Ingredient #2: Deep vs Shallow

Building durable defensible differentiation is a lot about making bets. Because with every choice, you will open opportunities and exclude others.

One of those choices is about how ‘deep’ you’ll tackle a particular problem.

Let me illustrate this with an example from one of my customers that I helped reposition: Sana Commerce.

Sana is an e-commerce platform for the B2B market. There are many ways to build an e-commerce platform, and one problem to tackle is your approach to dealing with ERP solutions.

The bulk of the e-commerce SaaS vendors out there are taking the approach of loose integration via a series of APIs. Sana didn’t.

At the start of their journey, Sana made the fundamental choice to embed their product natively inside two ERP platforms: SAP and Microsoft Dynamics.

Why? Because only this way allowed them to solve a critical problem for their customers: To make a promise and keep a promise.

Here’s the thing.

For their ideal customers having the ability to sell their products online is not enough.

What’s critical in their world is to offer their customers the comfort of buying online, with the security that what they buy is actually in stock, represents their volume discounts, respects their transportation conditions, and so on.

Accuracy and reliability are crucial – because that’s what these customers plan their entire business around.

One of their customers told me this: “Our customers don’t buy from us because we’re the cheapest, but because they can rely on us, no matter what. Day after day. Year after year. If we break our promises, we’ll be out of business in no time,”

Sana realized that loosely integrating a B2B Commerce platform to ERP can never keep up with the 1000s of daily changes in conditions, stock, business change, etc. The only way to stay in sync is to leverage the identical business logic the ERP uses.

So, they decided to go deep, not shallow. And, for the right customers, this provides them with durable defensible differentiation. Differentiation their ideal customers are happy to pay a premium for; because it provides them with defensible differentiation. It’s as simple as that.

Question for you to reflect upon

Where in your SaaS suite have you gone deep – where alternatives decided for shallow? How does it translate into defensible differentiation for your customers?

Ingredient #3: Business model

“The strongest differentiator for companies is in business model innovation, not necessarily technology. In technology, there will always be somebody smarter, someone that can throw more engineering resources at the problem, and someone that can come up with a better solution. It’s very difficult to beat someone’s business model, though.”

It’s a quote from Olin Hyde, at the time CEO of LeadCrunch (now REV)

Here’s the thing

Leadcrunch created a no-brainer offer that’s extremely hard to beat by any competitor – even those with 10x the funding.

They combined the power of their product with a no-brainer business model: Customers don’t pay for output but for the outcome.

What this means is this: a look-alike customer they can call directly because it’s pre-qualified or even an appointment ‘on a plate.’

It allowed them to right-fit the price so that their customers get a remarkable return on investment and that they could ensure that we’re putting enough resources behind every lead to make that relationship meaningful.

Their primary resource: Artificial intelligence – which has a high cost of development, but once it is built, it costs almost nothing to deliver to millions of customers.

The concept: The more A.I. that goes into the lead, the more likely it will convert into a customer, and the more their customers will be willing to pay for it.

“Our customers consider our technology to be their unfair advantage. Our revenues have grown 20% monthly for two and a half years. That’s an indication that technology works.”

Question for you to reflect upon

Can you create a no-brainer offer for your ideal customer (and unbeatable differentiation in the slipstream) by blending product and business model?

Ingredient #4: Guarantees

Do things others won’t dare to offer. It’s a fantastic way to create defensible differentiation.

A great example of this is Paddle. Let me explain. In a nutshell, Paddle does three things differently.

Instead of selling features, they sell a desirable outcome.
They don’t focus on what you can do with their solution but articulate what you DON’T have to bother about anymore.
Instead of making just a bold promise, they also give remarkable guarantees.

The three ingredients together give them differentiation that’s very meaningful to their customers and highly defensible.

Here’s what Christian Owens, Paddle’s CEO shared about it in my interview with him:

“It’s a really difficult thing to do to sit there and say, ‘we don’t think you should have to do this, not only do we not think you should have to do it, we’re going to do it for you. And when we do it for you, if we screw it up, you won’t pay for any of that – we are.’

That gives people confidence, and that helps justify a higher price. But the biggest thing that enables it internally is that our engineering team takes their jobs really, really seriously. There are 1000s of dollars a second going through Paddle. So the smallest mistake has a huge outsized impact on our customers and our revenue.

Making those promises externally means that we have to manifest them internally. You have to have a tight internal culture where people talk to each other.

So everyone is aligned that the stuff we build has to be resilient. It has to be solid so that we can go out there and make and keep the promises.”

Here’s the thing

It’s easy to make a promise and let the customer pay their ACV up front. But then there’s no incentive to deliver value until month 11 when you want them to renew.

Because too many times, the marketing team writes checks that the product can’t cash. They are going out there and making huge promises. And the engineering team, the product team, or whoever hears about it when the first customer wants to use it.

Taking Paddle’s approach – you get up every day and earn your money by building a good product and being true to your word.

Doing this enabled Paddle to bake it into how they price. They only make money when their customers make money. And more than that, they have no monthly minimums or fees. So if a customer pays $100,000 monthly, they can cancel tomorrow and leave tomorrow. The Paddle team even helps you migrate somewhere else smoothly.

Paddle is acting in a heavily competitive market. There’s nothing sexy about their product; it’s a cost of doing business, but how they make a promise and keep it creates unbelievably defensible differentiation.

Just think about it: It’s what is ethically correct in the first place. It’s what we all expect. So why not put your mouth where your word is?

Question for you to reflect upon

What can you offer that your SaaS competitors don’t dare to offer? What if you did so – imagine what this would do to the growth of your business.

Ingredient #5: Human touch

Building defensible differentiation is not only about technology or product.

Human touch can be a very powerful ingredient in the mix.

Let me illustrate that with an example of one of my customers: SALESmanago.

They offer a Customer Data Platform (CDP) and Marketing Automation Platform designed explicitly for B2C eCommerce teams who aspire to maximize eCommerce revenue …the lean way.

Let’s pick the latter part of that sentence apart.

Many CDP and Marketing Automation platforms can promise they’ll help you grow your revenue. That’s what you would expect, right?

But doing it ‘The lean way’ is where the difference kicks in. Defensible difference.

Here’s where SALESmanago has decided early on that architectural design and human touch can add to each other in a meaningful way.

Let me explain how by digging into the three core principles that underpin this.

Customer Intimacy: Implementing self-learning solutions that leverage zero- and first-party data. It’s architectural – and it allows their customer to know their customers better than their competition. It increases loyalty and authentic customer relationships.
Precision Execution: This is also architectural – It combines hyper-personalization of the omnichannel experience with proven predefined processes. This results in higher CR, AOV, and CLV and lower customer churn.
Growth Intelligence: here’s where human touch kicks in. Customers enjoy a combination of human and AI-based guidance to maximize the impact of their time, eCommerce budget, and strategy without dependency on IT. And this allows them to have full control over their revenue outcomes.

Many SaaS companies will say they invest heavily in customer success. So when I started my positioning project with them, I didn’t pay attention until I began to see tons of customer evidence – both online (Just check the review on G2) and the personal interviews I did with customers.

On the question: “What would you miss most if we’d take the platform away from you today” often the answer was: “Linda” (or whatever the name of their dedicated personal advisor)

Key takeaway – Defensible differentiation of your SaaS doesn’t mean it needs to be in the code – It’s about how you help your customers make a difference like no one else can or does. Human touch can be compelling (and defensible) icing on the cake.

Question for you to reflect upon

How could human touch grow the differentiation of your SaaS business in the eyes of your customers? How can you make it defensible?

Ingredient #6: Network Effects

Yellowdig’s approach to creating defensible differentiation is worth paying attention to. It’s a remarkable example of engineering for network effects.

The critical question they raise at the start of every new product:

“What’s the most important risk we must solve to believe there is something here?”

“When we started Yellowdig, the biggest thing for us was: can we really solve the problem of engagement with a product like social learning? The difficulty was related to human behavior because that’s very unpredictable whereas features and functionality are very predictable.”

Here’s the thing:

Solving the most critical risk does two things:

it helps you crack the most challenging (and costly) part first – a path others typically try to avoid
Solving this part often unlocks the most significant value

Those two together are your ingredients to create a flywheel for growth (as it did for Yellowdig). That’s pure defensible differentiation – the kind that grows as you evolve because it creates a network effect.

“We started seeing users who were absolutely in love with the product. Professors told us they would not even teach again if they did not have Yellowdig in the next course. Or students coming to us stating they’d told their other instructors/professors who are not yet using Yellowdig.

We knew that if we solve for that group of users, we’d have many champions to help us promote the product.”

Key learning: understand the problem as deeply as possible. Solve the most critical risk first.

Question for you to reflect upon

What’s the most important risk you need to crack with your SaaS solution to make users fall in love with your product? Have you ever thought about it like that? What if you did?

Ingredient #7: Economies of Scale / Leverage

One example can’t miss in this list of ways to create defensible differentiation – and it’s: Create unbeatable Economies of Scale.

A remarkable example of this is Botkeeper.

When I interviewed Enrico Palmerino, CEO of Botkeeper, in June 2021, he explained how they built defensible differentiation.

“Our platform is predicated on this idea of a coaching network. So the more a firm uses our platform and the more data they put into it, the more they coach the AI to get smarter.

We’re watching our data set increase exponentially, allowing us to automate more and more. So it’s like a self-perpetuating flywheel.

At the same time, we continue to drive the pricing to the floor. That increases our adoption, which increases our data acquisition, which fuels itself. But it also makes it increasingly difficult for competitors to enter and compete on the same playing field.”

Here’s the thing:

Botkeeper has designed its differentiation to become more defensible with every client they add. They’re not necessarily using novice innovation as the barrier – but an unbeatable price point.

Their continuously growing economies of scale allow them to bring the price down while increasing margin. And that matters.

As Enrico illustrates:

“We charged ten times more when we started our business. So the fact that we’ve lowered our pricing by 90%, and got our gross margin to double in that same period, says that you’d have to take a bath in terms of losses and in burn to try to compete at this level before you capture the data set needed to be able to do what we’re doing.

The result speaks volumes:

Regarding new signups, we did half of what we did last year in one month – and velocity is increasing. We’ve already more than doubled our book of business in the first four months of the year. And we expect to double again between now and the end of the year.

We’re starting to put more and more fuel on that fire to make sure that we make it impossible for someone to enter and compete with us.”

Question for you to reflect upon

How can you leverage economies of scale for your SaaS to make it impossible for someone to enter and compete with you?

Summary: Creating defensible differentiation in your SaaS busines

Creating defensible differentiation is about creating advantage.

You have a market access advantage over alternative solutions
You have a resource advantage over alternative solutions
You have a price advantage over alternative solutions

But there’s a trap. Defensible differentiation is worth nothing if it can’t be linked to value. Hence, everything starts with value. From there, you build the defense layers:

Value -> Differentiated value -> Defensible Differentiated value.

Easier said than done. So how do you go about?

Don’t obsess over product. Obsess over approach.
Remember, customers aren’t interested in competitors; they seek unique problem-solving approaches. That’s where the opportunity lies.

But if it’s not about your product, but your approach – what could you leverage in respect to this? Here are some of the ingredients that I’ve seen do their magic.

Ingredient #1: Magic concepts – the DNA of your SaaS product

Magic Concepts articulate your approach to solving a significant problem. Very often, it comes alive in the architectural choices you’ve made / you make that underpin your SaaS solution

Ingredient #2: Deep vs Shallow

Sana realized that loosely integrating a B2B Commerce platform to ERP can never keep up with the 1000s of daily changes in conditions, stock, business change, etc. So, they decided to go deep on integration with ERP, instead of shallow like most competitors do. This sets them apart with their ideal customers.

Ingredient #3: Business model

Ingredient #4: Guarantees

Do things others won’t dare to offer. It’s a fantastic way to create defensible differentiation.

Ingredient #5: Human touch

Defensible differentiation of your SaaS doesn’t mean it needs to be in the code – It’s about how you help your customers make a difference like no one else can or does. Human touch can be compelling (and defensible) icing on the cake.

Ingredient #6: Network Effects

Do what Yellowdig did, crack the most challenging (and costly) part first – a path others typically try to avoid. Solving this part often unlocks the most significant value. That can create compelling network effects.

Ingredient #7: Economies of Scale / leverage

Think about how you can automation to create leverage and scale and then leverage that to go to market with an unbeatable price point. Like Botkeeper does. Their continuously growing economies of scale allow them to bring the price down while increasing margin. And that matters.

In short: The objective is to articulate the approach that sets your SaaS product apart – and then leverage that in your positioning.

You have an opportunity to take position that others can’t take (or simply can’t afford). This is where your offering can become incomparable and irresistible for the right buyer. That not only speeds up sales, and increases your win rates – it gives you pricing power.

In all the work I do, virtually all B2B SaaS solutions look ‘the same’ on a feature/function level. But mind you, features are about ‘what’ you offer. The value lies in ‘how’ you solve problems. That’s in your approach. That’s unique to you – leverage that. Look for your differentiation in the combination of capabilities – not in individual features.

Crystalizing your unique approach is your opportunity to surprise and stand out. Take that opportunity

Good luck.

Additional resources to optimally leverage your defensible differentiation

The easiest way. Book a free call to explore if there’s a fit to do this together.

Otherwise – here are three other options

Read my essays to create remarkable traction.
Read my book, The Remarkable Effect.
Alternatively, subscribe to my daily email that’s laser-focused on helping B2B SaaS CEOs master remarkable traction.