How do you balance investing in competitive differentiation with building for customer retention?

I generally don't believe in investing in differentiation for differentiation's sake – if the feature doesn't solve a core customer need then I'd have a hard time prioritizing it over a feature that does simply for the purpose of checking a box on a table unless there's a strong belief (preferably: clear evidence) that it will drive a purchasing decision, and that is the right priority for the business at the time.

That said, the place where I could see this being a key driver of strategy is if you're looking to enter a new market or serve a new segment. In this case, differentiators may help test & validate a new unmet need, allowing you to move more quickly to establish a winning position in an adjacent market. 

When building a product strategy, you want to focus on identifying your target users and creating a plan to solve their biggest problems. You'll consider your product's unfair advantage and how you can lean into it. Many times, we, as product practitioners, overemphasize the need to differentiate. Don't get me wrong, you do need to have a clear why a user would choose you over your competitors, but it's okay to have boring solutions for the problems that are not core to your strategy. Let your users guide you to the problems that are worth spending the time and effort thinking of new and interesting ways to solve.

These don't have to be mutually exclusive. In many of the companies I worked in the install base actually were former users of old products and had some legacy tools still existing in pockets of their organization. It is critical to thoroughly understand your customer and deep dive into what will win your market. Often those don't have to compete or take away from each other. Some examples can be:

1. Critical workflows for managing specific tasks in the platform - usability

2. Improving integrations with ecosystem tools - expanding compatibility with customer tools and new logo acquisition

3. Improve onboarding experience and reduce CAC - improves set up experience for existing and new customers - while also standing out from the competition