293. Why the best products don't always win

You can build the best product in the market and still lose to a mediocre competitor.

This isn't reverse psychology—it's how markets actually work.

In this episode, Sophia Matveeva breaks down why superior products lose to inferior ones, and what you can do about it.

You'll learn:

• Why ecosystem lock-in makes incumbents nearly impossible to beat
• The "good enough" trap (and why being 20% better isn't enough)
• How VHS beat Betamax and Salesforce beat better CRMs
• Why distribution matters more than product quality
• The unfair advantage question you must answer before you build
• Whether enterprise sales is even the right game for you to play

If you're building a tech product and wondering why traction is harder than you expected, this episode explains what's actually standing in your way—and how to navigate it.

Essential listening for non-technical founders targeting enterprise customers.

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• Stitcher
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TIMESTAMPS

• 00:00 - Introduction: Why better products lose to mediocre competitors
• 02:14 - Ecosystem lock-in: The Salesforce and BMW example
• 04:30 - Why 20% better isn't enough: The switching cost barrier
• 06:46 - Catalyzing events: When incumbents are vulnerable (Zoom and Slack examples)
• 08:08 - Strategy 1: Understanding investor perspective on enterprise sales
• 09:10 - Strategies 2–4: Sales, unfair advantage, and choosing your market
• 11:28 - Strategy 5: Enterprise timelines and runway reality
• 12:16 - Create a new category instead of competing directly (HubSpot example)
• 13:39 - Action steps and closing

TRANSCRIPT

[00:00:00] Sophia Matveeva: You can build the best product in the market and still lose to a mediocre competitor. And this is not some motivational reverse psychology because this is a hard truth about how markets actually work. And if you don't understand why this happens, you're going to waste years of your life and a lot of money learning the expensive way. And so here's what you need to know and what you can do about this.

Hello and welcome to the Tech for Non-Techies podcast. I'm your host, Sophia Matveeva. If you're a non-technical founder building a tech product or adding AI to your business, you're in the right place. Each week, you'll get practical strategies, step-by-step playbooks and real-world case studies to help you launch and scale a tech business without learning to code. And this is not another startup show full of jargon, venture capital theater or tech-bro bravado.

Here, we focus on building useful products that make money without hype and without code. I've written for the Harvard Business Review and lectured at Oxford, London Business School, and Chicago Booth. So you are in safe hands. I've also helped hundreds of founders go from concept to scalable product. And now it's your turn. So let's dive in. Hello, smart people. How are you today? In this episode...

I'm going to talk to you about disappointing news and it's going to be kind of — the arc is going to be disappointment, disappointment, but then light at the end of the tunnel and then what you can do about the disappointment. So I'm going to basically give you some market dynamics and then I'm going to tell you what you can do about it. So basically you can work incredibly hard. You can build the best product and you can still lose to a competitor with an inferior offering and even higher pricing.

If you're no longer in your 20s, you've probably experienced something like this already. So either in your career or in your romantic life. So maybe you've watched somebody less qualified get the promotion you really wanted. Or maybe you've seen the person that you really fancy choose somebody else who is a mediocrity in comparison to you. And I have had both happen and they both suck. And the reason why I'm telling you this is not to demoralize you, but it's so you can build your strategy.

[00:02:14] Sophia Matveeva: With a realistic view of your obstacles. And then that realistic view is going to actually help you win because you'll have a strategy. So let's start with an example. Let us imagine that you have built new sales tracking software and your software helps teams in large companies track the prospects that they've got and close deals. And your product is beautifully designed. It's super intuitive to use. And because your brilliant engineers used AI to write some of the code,

your costs to build and maintain your product are a fraction of what the competition spends and you're passing these cost savings to your customers. So you've got a superior product at a lower price point. And according to basic economics and the efficient markets theory, you should win. Economic modeling and real life are different things. And this is why Richard Thaler won the Nobel Prize. And so.

In the real world, your competitor is Salesforce and Salesforce already has contracts with the majority of the firms that you want to work with. And they've been working with these companies for years and sometimes decades and dislodging them is going to be really, really difficult. And I'm going to show you why. So one of Salesforce's customers is BMW. And what does this mean in practice? Well, it means that there's a dedicated sales team within Salesforce

that knows the sales and procurement teams at BMW really well. And these teams, they've known each other for years. They get coffee when they're in the same city, they go out for dinner, they go to events, they catch up every quarter. And when issues arise, like there's a bug in Salesforce's products, or there's a delayed feature or a contractual question, the BMW team knows that Salesforce handles them professionally and delivers. And so essentially there's trust that is built over time. Meanwhile,

the sales team at BMW has also been trained on Salesforce. They know where every single button is and they've built their workflows around it. There might be some early adopter experimenter type people in the sales team who are really curious about trying new products, but most people are not because learning new software takes time and nobody can be bothered. And wait, there's more. So it's not just that the BMW and the Salesforce teams know each other and that they get on.

[00:04:30] Sophia Matveeva: It's also that Salesforce integrates with like 5,000 other tools that BMW uses. So your sales tracking software might have better features, but can it talk to your client's ERP system or their marketing automation platform or their data warehouse or their business intelligence tools? So the switching cost is not just retraining the sales team and building relationships, it's potentially rebuilding the entire tech stack or living with broken integrations, which basically no client wants to do.

or maintaining two systems during a painful transition period. So do you see that even if your offering is really, really good just in terms of product and price, when you actually look at it holistically, it's not that great. So the thing that I've just been talking to you about is called the ecosystem lock-in. So it's one of the most powerful moats in business and I want you to know about it because I want you to build it. And here's another really annoying piece of truth

that founders often underestimate, Salesforce doesn't actually need to be the best. It just needs to be good enough that the pain of switching exceeds the pain of staying. So let's say your product is 20% better. You'd think 20% better is good, but that's not going to be good enough. You need to be 10x better to overcome painful switching costs that I told you about. So not incrementally better, but dramatically, obviously undeniably better. And even then, better might not matter.

Because what we found is that different enough to matter is what counts. I'll give you some historical examples of inferior products beating superior products. So VHS beat Betamax and Betamax had superior video quality. VHS had distribution and longer recording time. Salesforce beat better CRMs when it launched. Why is that? Because they were the first to market with cloud-based CRM when everybody else was selling installed software.

There's a pattern in here, which is that distribution beats product quality basically every single time. And so now that I've thoroughly depressed you, I've got some good news. Markets have specific windows when incumbents are vulnerable. And so these aren't about having a better product, they're about catalyzing events that force change. So for example, Zoom didn't beat Skype because it was technically superior.

[00:06:46] Sophia Matveeva: Zoom won because COVID created a moment when everybody had to try video conferencing tools. So essentially the market was kind of open and free for everybody. And suddenly switching costs didn't matter because everybody was switching anyway and everything was switching, right? Look at outside of a COVID time. Slack didn't beat email because email was bad. So I don't know about you, I use Slack in my company and we also use email. So Slack won because remote work

created demand for real-time communication that email could not serve. So if you're building for enterprises, look for a catalyzing event like a regulatory change, a technological shift or market crisis. These events, you can't influence them. I want you to be ready for them, but you can't basically influence a market crisis unless you are incredibly powerful, which if you are, then give me a call. Anyway, let's talk about your actual strategy, things that you can do

apart from waiting for a Black Swan event. They're number one. First of all, I want you to know that investors understand this dynamic, which is why they get much more interested once you've broken through the enterprise sales ceiling. So if you're asking investors to fund a two-year sales cycle, and honestly, your sales cycle might be two years, it might be longer, expect your valuation and the difficulty of fundraising to reflect that reality because enterprise sales are expensive and they're slow.

They're expensive because they're slow. And so until you've proven that you can close enterprise deals, you're basically a much, much riskier bet. So number two, do not rely on your product alone to do the selling. And in sectors where software is sticky and where incumbents are entrenched, your sales and your marketing efforts are what make or break the business. And this is actually really good news for non-technical founders because sales and marketing are usually where your strengths lie.

The technical founders, they often build amazing products and then basically wonder why nobody buys them. Whereas as a non-technical founder, you understand that building relationships, understanding buyer psychology and creating compelling narratives matter just as much as the code quality. Third, this is something I really want you to think about. Answer the unfair advantage question before you build. So if product quality is not enough and we have just established that it is not, what is your unfair advantage?

[00:09:10] Sophia Matveeva: Do you have access to a network that the incumbent can't reach? Maybe you've spent a decade working in pharmaceutical sales and you know every single decision maker in that industry. Or is there a niche that you can serve profitably that the incumbent can't? So maybe Salesforce's sales motion requires six-figure contracts, but you can profitably serve companies that are spending just $10,000 a year. So if your only answer is that we're better, our product is better, you're going to be in trouble.

Think about your unfair advantage. And fourth, and I think this is really, really useful, consider whether enterprise is actually the right thing for you to do. Because maybe the enterprise game is just not worth it. Maybe your brilliant sales software should not target Fortune 500 companies at all. Maybe you should target the 50,000 companies with 10 to 50 salespeople and the companies that can't get Salesforce's attention, can't afford their prices, and basically don't need all of their fancy features.

And so sometimes the best strategy is to dominate a market where the incumbent cannot be bothered to compete. And once you dominate that market, yes, you can move all the way up, but also you don't have to. That market is pretty big. So point five. If you do choose to play the enterprise game, I want you to understand the real timeline because two-year sales cycles, they're not the worst case scenario, they're actually pretty average.

So let's think of the money. Basically, you need 18 to 24 months of runway before you close your first deal. And most founders underestimate this by like three to four times. And this is really, really painful because cash flow kills more better products than competition does. And you can have the best product in the world, but literally if your company is running out of money before you close the deals, then it doesn't matter how good your product is.

So if you're going to go down the enterprise sales route, make sure that you have the runway to fund it. And you know what else you could do? You could have a completely different approach to your product. Instead of competing with Salesforce on better CRM, you could just create a whole new category where you define the rules. And Peter Thiel actually talks about that in his books,

[00:11:28] Sophia Matveeva: where he says, create your own category where people can't compete with you. So let's have an example of HubSpot. HubSpot did not say that we're a better CRM. They said we're an inbound marketing platform and redefined the entire game. And so by the time Salesforce realized what was happening, HubSpot basically owned a category that Salesforce couldn't easily enter. So if you create a new category, you're creating a new way of thinking about the problem

and you're not fighting the incumbent advantages and you're building your own moat. So you see how storytelling is actually really, really important here. So my dear smart person, I hope I've not completely demoralized you, but given you some strategies so you can look at your prospect soberly and therefore actually have a higher chance of winning. So today we've covered that the market does not reward the best. It rewards the most successful or the most entrenched.

Which sucks. What I found is that tech founders obsess over product quality, but business owners, business winners, obsess over distribution. Your product is important, but your distribution strategy, how you reach customers, how you build relationships, how you create switching costs of your own, that matters way more. And the good news is that once you're in, you're in for the long haul.

In previous episodes, I mentioned a fintech founder who sells to insurance companies. So he's got a fintech product that works with insurance companies. And he is the one who told me that he has a two-year cycle. But he also said that once he closes a deal, that customer stays for years. The same switching costs that protected Salesforce now protect him. And this is why enterprise software companies can have such high valuations despite slow growth,

because the revenue is sticky, churn is low and lifetime value is enormous. And now here's a summary of what you should actually do with this episode, with this information. So number one, before you build, answer the unfair advantage question. If you don't have one, find one or choose a different market. Number two, build distribution into your strategy from day one because your product alone will not save you even if it's super amazing. Number three, look for catalyzing events and take advantage of them.

[00:13:39] Sophia Matveeva: So regulatory changes, technological shifts, market crises, these create windows when incumbents are vulnerable and that's your chance to strike. Four, consider whether you should create a new category instead of competing in an existing one. Five, if you're targeting enterprise, make sure that you've got 18 to 24 months of runway before your first deal closes. And then add another six to 12 months as a buffer because

in my experience, even when you send the invoice, those payment terms can take a while. Number six, be honest about whether the enterprise game is actually worth playing for your specific situation. Because sometimes the smaller, unsexy market is the smarter choice, especially at the beginning.

So remember, the best products don't always win, but the founders who understand why, which now includes you, and build their strategy accordingly, dramatically improve their odds. So basically, you are welcome.

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