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Different > better.

Especially in an industry that loves to rank, chart, compare, and benchmark errrthing.

Because when everyone is trying to prove they're better, everyone starts sounding pretty much the same.

In this Encore episode, Stacy is bringing back one of her favorite conversations about what it actually takes to stand out.

She’s covering:

Why leaning into what makes you different means going to the edges and getting radical
Why 80% of executives think their company is differentiated, while only 10% of customers agree
How to create a category of one
What differentiation is, and what it absolutely is not
Why you must be brave enough to attract and repel

This is Billion Dollar Backstory: Encore, because some conversations are just too good not to bring back.

TRANSCRIPT

Below is an AI-generated transcript and therefore it may contain errors.

[00:00:00] Stacy Havener: You know that moment at a concert when the lights go down, but the crowd won't stop clapping until the band comes back out for one more song? That's what this is. Welcome to Billion Dollar Backstory Encore episodes. An encore only happens because people liked what they heard the first time around and they want more.

[00:00:21] So today, we're doing exactly that, bringing back one of our favorite conversations just for you. Sit back, grab your popcorn, and enjoy. Many business and branding experts will tell you that trying to be better than your competition doesn't work for a lot of reasons, one of which is better is subjective.

[00:00:44] So let's take an example. I'm gonna p- throw myself under the bus here a little bit. Let's use Dunkin' Donuts coffee. Now, Dunkin' Donuts coffee is better than Starbucks coffee. Not only is that my own subjective belief, it's one that's not shared [00:01:00] by many people at all, for good reason. On many levels, Dunkin' isn't a better coffee.

[00:01:06] They probably don't have the best coffee beans. They're probably not sourced in the best way, probably not prepared with the best water, and so on. But if I have a choice between Dunkin' or Starbucks, I pick Dunkin' every time. It's not better or worse than Starbucks. It's different. And in fact, there's a Starbucks across the street from our office.

[00:01:27] I go there a couple times a week, and I enjoy it. It's a very different experience. It's a different coffee drink. It's different breakfast items. I meet people there. It's cozy. There's a whole vibe to Starbucks that Dunkin' just doesn't have. The point is, there's room in my life for both. I appreciate them both.

[00:01:49] They play very different roles in my day-to-day. So you could say coffee, my coffee and breakfast game is better because I have [00:02:00] Starbucks and Dunkin'. Oh, and by the way, why don't we just throw my local coffee shop in that has better coffee than them both, but it just takes longer to get to? So you see, there's room for all those coffee spots in my portfolio of caffeinated beverages, and it's like that with many things in life and biz, and certainly with a portfolio of funds.

[00:02:25] Investors likely have more than one manager per asset class, and those managers complement each other. Yet, on the other side of the table, the managers approach the situation as if it's fight to the death, let the best fund win. Today's episode is a challenge to that mindset. We're going to unpack it, and then we're gonna talk about how you can identify and lean into your edges because better isn't better.

[00:02:54] Different is better. Let's dive in. Okay, I wanna start with the [00:03:00] idea that the investment industry, contrary to everything I just said, actually does define itself by better. Every podcast guest that I've had has talked about the importance of differentiation in the investment industry, and it's core to the marketing and sales work we do with clients at Havner.

[00:03:19] So the investment industry, though, has a response to all the branding experts who believe better is subjective, and the response they have is, "Not here it isn't." Our industry believes better and best are objective. Why? Performance, asset under management, MPT statistics. Numbers can prove who is better than whom.

[00:03:42] So better can work here, or at least that's what the industry thinks. Maybe they even think better is best here. I beg to differ. It's a very dangerous way to build a business, and we'll talk about why, and it's also not [00:04:00] true. Here's the thing, if better was best, then the data would support that, and it doesn't.

[00:04:06] The biggest funds are not the best performers. The best performers don't get the most in fund flows. So whatever growth metric you wanna look at from a business perspective, head-to-head competition isn't the path to the winner's circle. There's more to it than that. Yet so much of the marketing and sales content in the investment industry is focused on being better than the competition.

[00:04:31] So the classic example is saying something like, "Your benchmark or your peers by this marginal amount over some timeframe." And let's just be clear, a couple basis points of outperformance does not qualify as a strong differentiator. I mean, even hundreds of basis points of outperformance doesn't qualify.

[00:04:51] It's not an edge. Okay? It's not an edge. It might be an outcome of your edge, but the performance itself [00:05:00] isn't the differentiator. We have to go layer deep. And instead of focusing on marginal difference, instead of focusing on results, what if we challenged ourselves to key in on the real drivers for massive differentiation?

[00:05:17] I'm talking about the 20% of who we are or what we do or why we do it that is vastly different Than our peers. And the same 20% is what's driving 80% of our results. So different is better than better, even in the investment industry. So I had this great study, and I may have to grab a piece of paper here, um, from Bain on differentiation, and I wanted to share some of this with you.

[00:05:47] So, so Bain asked executives whether their company's offerings are differentiated, and about 80% of them say, "Yes, our company offerings are differentiated." But if you ask [00:06:00] customers of those companies the same question, only about 10% of them will agree. Okay, that's a pretty big disconnect. Or ask a company's management team exactly what it is that makes their products or services different from competitors, and you'll often hear as many as a dozen different responses.

[00:06:21] And yet, if a company isn't clearly differentiated from competitors, it essentially has no strategy. This is still the Bain study. The assets and capabilities that form true differentiation are your company's crown jewels, determining whether you outperform competitors. You dig? We all think we're different, but the reality is our clients, our customers, our prospects don't perceive that differentiation.

[00:06:51] And by the way, that's where brand really lives, is in the minds, and hearts, and souls of our customers. And I think it [00:07:00] highlights a real challenge that we have, which is we can't define what really makes us different. So I wanna stay with that a little bit because the secret to differentiation is really to go to the edges, okay?

[00:07:15] It's to get radical. It's to find your fascinating. And I don't know if you know Sally Hogshead. She's one of my favorite experts on differentiation. Also, can we talk about how different and awesome her last name is? She has a great, a couple great TED Talks, and she actually kind of talks about her last name, so I'll put a link to that in the show notes.

[00:07:35] Anyway, here are some of the things that, that Sally talks about, and I think they will get us thinking. So 90% of people think they are more intelligent than the average person, but only 39% believe they are more fascinating, okay? I don't know why that makes me laugh. It just makes me laugh. And yet 80% of people [00:08:00] behave differently when they are fascinated by a brand.

[00:08:04] They do research. They talk to friends. Fascinating brands and people create a physical response. Better is not better. It's actually worse. This is all kind of Sally Hogshead language here. And she says, "Better keeps you chained to the same way of working as your competition." I think that is so true. If we are trying to compete at a level of I'm better than this person or this company or this fund, we have to compete the same way that they are.

[00:08:38] It's very hard to stand out when you're doing the same thing as everybody else. So Sally continues, she says, "Being better is temporary. It's a flimsy advantage that can be toppled in a millisecond by someone with a bigger following or a lower price or a better location, a shinier award, a newer technology, or a fancier degree."

[00:08:59] And then [00:09:00] I would add to that, in the investment industry, or better performance. It's not enough. Instead, think about m- what makes you radically different, what makes you fascinating. I know. Probably didn't expect fascinating and fund management to live in the same podcast, but here we are. Another person I've really been deep diving on lately is Marty Neumeier, and he is a pioneer in branding.

[00:09:28] I listened to a podcast with him recently. I think it was called The Brand Master Podcast. And, uh, from that I ordered a bunch of his books, and I'll put some links in the show notes. So he defines brand strategy as the longterm plan to outmaneuver competitors through radical differentiation. Companies believe they are being different because they know that differentiation is strategically very helpful because you don't wanna be competing head-to-head with anybody.

[00:09:58] But companies [00:10:00] underestimate how much difference you really need to make it clear that you actually are different And he tees up this idea of an accidental brand, which is interesting because, and maybe some of us can relate to this, you know, you come up with something different. You tried it, it worked, but you don't actually know how you did it, so you can't repeat it.

[00:10:23] Yeah, so that's not enough. We can't just identify the outlier moments where we did something radically different. We need to find the repeatable differentiators that define our edge. So ask yourself what is core to who you are, how you do what you do, why you do it, that is also very different than your peers?

[00:10:44] And that's gonna take some bravery to find your fascinating, by the way. But that's okay. We're in it together. Marty also talks about this concept of category of one, and this is interesting 'cause of course in the fund business, like, what category or [00:11:00] asset class you're in is very important, right?

[00:11:02] Everybody wants to make sure they're in the right category, or, "I don't belong in a category. Don't put me in a box." You know, that whole narrative there. And I get that because you don't want to be the best long-only US value manager or the top global fixed income manager. That's fleeting, to go back to what Sally Hogg had said.

[00:11:21] You know, you battle your way to the top position in a category, but it's very unlikely that you'll stay there. The persistence is gonna be low Instead, what if you created your own category, a category of one? And the way you get there is by being a specialist, by owning a niche. And if you've listened to this podcast, you may remember the episode with Simon Evan Cook.

[00:11:48] I don't know what number episode that is off the top of my head, but I will also put that in the show notes. And he really holds a masterclass in the art of differentiation. So he says he's not interested in the average [00:12:00] fund manager. In fact, he's like, "They're not even worth holding." What he's looking for is the exceptional, the different, the Marmite fund manager, as he calls them.

[00:12:08] And if you listen to that podcast, you know I'm apparently getting a shipment of Marmite here that I will be taste testing on video. But the idea of that Marmite thing is it's something that attracts and repels, and that can apply to us as people, it can apply to our companies, our funds, and that's exactly what Simon Evan Cook was leaning into.

[00:12:30] He's saying, "I want the disagreeable fund manager. I want the one who challenges the status quo, who doesn't follow the norm." And so that forces us to ask ourselves, are we being brave enough to attract and repel? Are we leaning into what we stand for and what we stand against? And that is actually a really big unlock, to ask yourself what you stand [00:13:00] against, and we're gonna talk about that a little bit more.

[00:13:02] Okay, there's another podcast we did with James Fletcher, founder and portfolio manager at Ethos, and he gave a great example of differentiation and edge when he talked about how they view culture as a big driver of return in the companies they invest in. And he shared some research around that thesis, and he gave some examples of investments they've made and the role culture played in that decision-making process.

[00:13:28] And culture alpha, if that's such a thing, is an edge at Ethos. So I wanna talk about c- competing and complementing. I'm gonna save that. Let's spend a few minutes here on what is differentiation and what isn't. I think we know it when we see it, but let's try to put some framework around that. So too often our answer to what makes us different sounds like everyone else's.

[00:13:55] Our differentiator is exactly the, the same, and so that's by [00:14:00] definition not a differentiator. And, um, Dan Mikulskis in the episode with him, he talked about, you know, when you get a pitchbook from a fund manager and they have, like, all their locations on a map, and they talk about their people and the combined experience and the depth, the number of employees, and of course their values.

[00:14:18] And I get, like... So the point being that everybody says those things, and I get it because it's in h- our nature to want to fit in. But if you want to get selected by an allocator or by a client or a prospect, you need to stand out, and that requires bravery and courage. Go back to Simon Evan Cook when he talks about that disagreeable rebel fund manager.

[00:14:41] You gotta tap into that part of you. So here are a few ways you can do that. So the first obvious thing is you can kind of grab a notebook and a pen and ask yourself what makes you different And I think the challenge with that is the truisms come up, and that was something Dan [00:15:00] Mikulskis also talked about in his episode.

[00:15:02] So ask yourself then what you don't like about your industry. So you could ask yourself what makes you different, what you stand for, right? Or you could ask yourself what you don't like about your industry, something your peers do that you disagree with or don't do, or like what pisses you off about your space, and that would be things you stand against.

[00:15:25] And I'm not talking like moral stance here. I'm just talking about things that are typically done by your peers that you don't do or you do differently, things that you stand against. And that can be kind of a really cool rallying cry. I think it taps into some emotion, which of course makes an even better story.

[00:15:43] And going back to my friend Dan again, he deep dives on differentiation or I guess the lack thereof in the asset management space. And he has a great hack for listeners, which is to ask yourself if you're defining your differentiators with truisms. I'm not gonna [00:16:00] lie. I am an English major. I still looked up truism to make sure I could really capture the nuance of this fabulous word choice from Dan, and it's a statement that is obviously true.

[00:16:10] And what I liked about his usage of it was he said, "For which there's not really a valid counterargument." Meaning, when you articulate your edge or your differentiator, ask yourself if the opposite is also valid. If the opposite is also valid, then you've hit on something. If the opposite is not really valid, it might be a truism.

[00:16:38] So for example, if you said our people are a differentiator, like we have great people. Is the opposite of that a valid statement? Is there an asset management firm who could come out and say our people are not our differentiator. In fact, our people suck. That's not really a valid statement. So our people are differentiators is a [00:17:00] truism.

[00:17:00] Alternatively, you could say, we believe that a portfolio of best ideas should not be more than 15 names, right? That's a differentiator for us, or maybe it's 10. I don't know. Someone could take the other side of that and still make a valid statement, right? They could say, we believe a portfolio of the best ideas can have 25 positions in it.

[00:17:24] It's valid. So that's an example of how you can know if you're sort of getting stuck in truisms. The other thing that I like to do there is if we're working on something marketing or sales copy or content, and we could just swap out the name of our client and insert the name of any of their competitors and the statement still holds, that's not a differentiated statement

[00:17:54] Speaking of statements, let's go back to Marty Neumeier. One of the books I got after listening to his [00:18:00] podcast episode was called Zag. And there's an exercise in Zag. There's so many cool things in that book, by the way. Um, but there's an exercise in there on how to create an onlyness statement, and I'm gonna need

[00:18:14] I don't even know if I printed this, which is gonna really stink, 'cause I can't tell you what it is. Shoot. I will put that in the show notes. It's basically, I think this is gonna be off the cuff, but we are the only insert offering in our insert category that insert benefit. Kinda hard to hear that and not visualize it.

[00:18:39] But what you're trying to get to is, like, it's almost that cross thing that we talk about. What are the unique elements, maybe s- things that don't even seem related, that when you cross them, create a category of one, and can create this onlyness statement? Not in, like, a hyperbole way, by the way. I'm not a fan of, like, "We're the best," or, like, "We're the [00:19:00] only," unless you do it with things are just really uniquely different Okay, another thing you can do to get at your differentiators is old way versus new way.

[00:19:11] The old game versus new game, and the master of this, in my mind, is Andy Raskin. He talks a lot about strategic narrative and around paradigm shifts, and I'm like, "Someday I'm gonna ask him to be on this podcast," but I'm so not ready for that. I hope he will, uh, come and share his expertise with us. Old way versus new way.

[00:19:29] Like, you know how everybody in... Everybody who's a value investor does this, well, we do that, right? It's also that zag idea. Old way versus new way. One of the examples that Andy Raskin often uses is when salesforce.com came out and Marc Benioff said, you know, "Software is the old way and cloud is the new way," right?

[00:19:52] A big shift in which there will be winners and losers. So that's a way to get to differentiation. [00:20:00] And Ron Carson, in our podcast episode, if you listen to that one, talked about differentiation the same, that old way versus new way, and he actually went back to kind of the early days of, of his career saying the original old game was financial advisors and mutual fund companies, you know, used to treat clients as a number.

[00:20:19] There was no fiduciary responsibility. They weren't sitting on the same side of the table as their clients. And kind of the first big shift that had to happen was, was that, right? The opposite of that. Fiduciary, removing conflict of interest, uh, you know, fee only, all that stuff, disclosures. But now he did a, a second old way versus new way where he talked about the idea that, that the new way today is leveraging technology and innovation to scale, which typically was not in the realm of the financial advisor, while not losing what makes us special and unique.

[00:20:55] So kind of combining repeatability and tech and scalability [00:21:00] with specialization. Oh, yeah, here. I found the our offering is the only. So it's our offering is the only thing in the category that has this benefit, so I was, I was right. Okay, sorry. Jumping around a little. Okay, so let's summarize. The big thing I want you to take away from this podcast episode is that the industry really wants to create a zero-sum game or believes that- Getting selected by an allocator is a zero-sum game, that somebody loses in order for you to win, and that's not true.

[00:21:39] There isn't just one allocation or one manager in an asset class. There's usually multiple for many reasons on manager diversification, concentration risk, business risk, all of those things. But also just from the very basic idea that people and funds are different, and that the sum of the [00:22:00] parts... You know, the whole is greater than the sum of the parts.

[00:22:02] And so complement instead of compete. Zag when everybody else is zigging. And if we can't get there, then as allocators or prospects or clients are looking at us, they are gonna be trying to find points of differentiation. Oh, by the way, that's where fees come in, and it becomes a race to the bottom. We don't wanna do that, okay?

[00:22:26] We also don't wanna battle our way to the top of an existing category, okay? We'd rather have a category of one, and that means being a specialist, not a generalist, and niching down. And I know that's terrifying to people because if you're building a business, you're thinking, "Great. Stacy's telling me I have to niche down, which means now I'm marketing to a much smaller group of people, and she's totally killing my odds for success here."

[00:22:51] And it's... I know that that's a real fear, but I- I'm telling you that it's a myth. When you try to be [00:23:00] everything to everyone, you end up meaning... You fail to mean anything to anyone at all. You wanna be a meaningful specific. I know you think you wanna cast the widest net, but I'm challenging you to think differently about that.

[00:23:13] When you broaden your prospect pool and you try to be everything to everyone, you're also broadening your competitive pool. Everyone becomes a competitor. Let's find a small, passionate audience that's being underserved, and serve them by what you are uniquely good at, your differentiated, unique authority, unique ability, unique offering And remember, too, that brand is a perception in your investor's mind, not what you say your brand is.

[00:23:44] So don't forget to keep a pulse and kind of ask your investors how are they using you? What do they think makes you different, or what strategies or funds are you complementing and, and how are... what is that differentiation? Oftentimes, that [00:24:00] allocator is trying to balance out exposures or even results and experience, or how managers think and, and what makes their process unique.

[00:24:08] I wanna also talk about and end with Daniel Crosby's podcast, which, I mean, is just like a masterclass in behavioral everything, and I'm gonna have him on the podcast again. Uh, we're gonna do a little miniseries, so stay tuned for that. But he talks about how our brains want to answer an easier question.

[00:24:28] So quantitatively, when they're looking at, like, a big group of funds, they're gonna weed out the funds that just aren't good, and then our brain's gonna whittle it down, you know, wants to whittle it down to a shortlist, but at that point, the subconscious buying kicks in, right? 'Cause 95% of decision-making happens in our subconscious, even in the investment world.

[00:24:49] And Daniel talked about that likability or the power of authenticity and the beer question, which is typically given in the context of voting [00:25:00] and the idea that when you're trying to square a whole bunch of different things that are very big and very complex, sometimes you wanna just get down to the nitty-gritty, which is, would I wanna have a beer with this person?

[00:25:11] Are they likable? Do I think they're authentic? Differentiation can hide in our eccentricities. What makes us different, what makes us fascinating, is often at the edges. So I'm here to encourage you to be brave, be willing to attract and repel. Here's to the rare birds. Let's be real. No one wakes up and says, "I can't wait to build some operational infrastructure today."

[00:25:41] You're here to manage money, to build something that lights you up, not chase down reports across five systems and 15 service providers. That's where Ultimus Fund Solutions comes in. They're your ops dream team, consolidating all your middle and back office chaos into one [00:26:00] clean, scalable setup. Registered funds, private funds, SMAs, all integrated.

[00:26:08] One team, one tech platform, one rock solid source of data. But here's the real differentiator: service. I know that fund in a box sounds convenient. It's also a box. Know what you can't put in a box? A human who picks up the phone when you call and need help. Real-life people who know your name and your fund, and they care about getting it right.

[00:26:33] Ultimus was built on people doing business with people. You get institutional strength combined with boutique-level service without getting stuck in a phone tree of doom. If you're ready to simplify, scale, and start working with a team that feels like an extension of yours, check out billiondollarbackstory.com/ultimus.

[00:26:56] That's [00:27:00] U-L-T-I-M-U-S. You've got the investment strategy, the vision, the track record. Now it's time to upgrade the engine behind it all with Ultimus. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer, solicitation, or recommendation of any of the funds, services, or products, or to adopt any investment strategy.

[00:27:25] Investment values may fluctuate, and past performance is not a guide to future performance. All opinions expressed by guests on the show are solely their own opinion and do not necessarily reflect those at their firm. Managers' appearance on the show does not constitute an endorsement by Stacy Havener or Havener Capital Partners

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