In case you don't know them, 37Signals are one of the most forward-thinking people at selling software as a service. They've got a great blog called Signal vs. Noise.
I was listening to their podcast, and found this amazing gem by David:
One of the things we've tried to do is look at what we're trying to achieve, not what tools we're currently using. I'd say, by far, our biggest competitor for all our products is email.
It's not that email offers the same functionality, it's that email is how people are running their projects. ... If you're looking at a market in terms of what products are already available and say, "Well, we could probably make a similar product that just gave you more features" then the potential for you to have a breakout success is much less. When you have a product that's designed to compete on an even playing field with other products and just one-upping them, the way to win is massively out-market them. ... If you try to invent your own market space and category by fusing a few things together and looking at what people are really trying to achieve using Basecamp or even Excel spreadsheets - if you can identify a use case within the space that no one is attacking directly, then your chances of having a breakout success and a product that basically sells itself is much, much greater.
That's from time 13:40 on Episode 3. You can download that podcast here - it's free, and highly recommended:
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