Solving Your Margin Problem With Competitive Intelligence: Weekly Winning Strategies
Most competitive challenges aren’t problems you can simply solve. There are continuing strains that come with your place in the market, and you need to learn how to manage them. Here’s why companies waste millions trying to fix these tensions, and how competitive intelligence can show you which challenges you can actually address.
The Margin Problem That Couldn’t Be Solved
A SaaS company spent three years trying to fix its “margin problem.” Their gross margins were 60%. Competitors averaged 70%. The margin gap was killing profitability.
Leadership was convinced it was a solvable problem:
- VP of Product said, “We can fix this by building more efficient product architecture”
- VP of Operations claimed that “We can fix this by reducing support costs”
- CFO said, “We can fix this by improving pricing”
They pursued all three initiatives simultaneously.
- Rebuilt architecture (18 months, $2M cost).
- Reduced support team (destroyed customer satisfaction).
- Raised prices (lost customers).
After a couple of years or so, margins improved to 62%. Still 8 points below competitors. Meanwhile, they’d:
- Destroyed customer satisfaction
- Lost market share
- Burned cash on architecture projects with minimal ROI
- Demoralised the team.
Why higher margins?
We asked: “Why do competitors have higher margins?”
They looked confused. “That’s what we’ve been trying to figure out for three years.” We did competitive analysis. Found the answer. Competitors had higher margins because they:
- Focused on enterprise customers (higher pricing power)
- Required annual contracts (better cash flow visibility)
- Used professional services revenue to cross-subsidise product margin
- Had been profitable from the early stage (accumulated capital to invest, lower pressure for margins)
Margin gap wasn’t wrong. They were just trying to solve the wrong problem.
- They were SME/SMB-focused, so they had lower pricing power than enterprise
- They offered rolling monthly contracts, so there was less margin cushion
- They had no business services. Pure SaaS model
- They were VC-backed, so they favoured growth over profitability from day one
These were strategic choices, not “doing” problems.
They could have pursued enterprise customers, required annual contracts, and built services. But that would have meant becoming a different company serving a different market. The “margin problem” was actually a market role tension. It wasn’t solvable within their current strategy. It was manageable, but not fixable.
They spent three years trying to solve an unsolvable problem instead of deciding: “This tension is inherent to our SMB + month-to-month + pure SaaS positioning. We either accept lower margins or change our positioning fundamentally.”
Why Companies Confuse Tensions With Problems
At Octopus Intelligence, we’re a UK and US-based competitive intelligence agency built by former British military intelligence analysts. Here’s what we’ve learned: Companies default to treating tensions as solvable problems because:
Reason 1: Solving Problems Feels Like Leadership
Leaders are measured by results. Solving problems produces results. Managing tensions produces… what? Ongoing negotiation? Accepting and saying “we’re going to improve margins” sounds like strong leadership. Saying, “we’re going to accept lower margins because of our market position and manage them strategically”, can sound like giving up. It sounds like surrender.
Reason 2: Admitting Unsolvable Tensions Creates Discomfort
Realise that tension is unsolvable. And admit:
- Your strategy has limitations
- You can’t out-execute your way to parity
- And you know, some competitive disadvantages are choices, not mistakes
This can be uncomfortable to admit. It’s easier to believe the problem can be solved and you just haven’t found the answer yet.
Reason 3: Consultants and Vendors Profit From False Hope
Every consultant, vendor, and expert has a solution to sell.
“We can improve your margins through operational efficiency” (hire our consultants)
“We can improve your margins through better pricing strategy” (use our pricing tool)
“And we can improve your margins through product optimization” (buy our software)
The incentive structure rewards claiming that problems are solvable rather than admitting tensions.
Reason 4: Admitting Trade-Offs Needs Strategic Clarity
Managing tension requires accepting the trade-off:
“We’re SMB-focused. That means lower margins. We accept that in exchange for faster sales cycles and broader market.”
This demands clarity about what you’re optimising for. Many companies never achieve this lucidity. Easier to chase margin improvement than to articulate: “We’re choosing growth over margins.”
How Competitive Intelligence Reveals Which Is Which
Here’s how to distinguish between solvable problems and inherent tensions:
Question 1: Do Competitors With Similar Positioning Have the Same Tension?
If every competitor in your market segment has the same tension, it’s probably not a solvable problem. It’s inherent to the positioning.
Example
You: “We can’t compete on brand because we’re a challenger brand”
Competitors with similar market status: Also have weak brand positioning. This isn’t a solvable problem. It’s a tension inherent to being a challenger. You manage it through differentiation, not by solving it. If only you have the tension while similar competitors don’t, it’s a solvable problem. You’re executing worse.
Question 2: Do Competitors With Different Positioning Have Different Tensions?
If competitors with enterprise focus have different tensions (higher implementation costs, longer sales cycles) than you do (lower margins, faster churn), that reveals:
The tensions aren’t universal problems. There are trade-offs of different positioning strategies.
You can’t eliminate your tension without changing your positioning.
Question 3: Have Competitors Tried to Solve This Tension and Failed?
If competitors have attempted to solve what you’re struggling with and abandoned the effort, that suggests it’s an unsolvable tension, not a problem.
Example
A SaaS company wanted to serve both SMBs (quick sales, low prices) and enterprises (long sales cycles, high prices) simultaneously. We checked: Did competitors try to serve both? Yes. Did they succeed? No. All shifted to focus on one or the other. The tension between SMB and enterprise wasn’t solvable. Competitors had learned this through experience. The company was about to repeat its mistake.
Question 4: Does the Tension Stem From Market Status or Execution?
Market status tensions:
- SMB vs enterprise pricing power
- Product-led versus a sales-led growth model
- Horizontal compared to vertical market breadth
- Low-cost compared to a premium positioning
Execution problems (fixable):
- Customer support quality below industry standard
- Product quality below competitors’
- Sales effectiveness below team capability
- Marketing effectiveness below spend levels
Distinguish by: Do competitors with your exact positioning have this problem?
SMB SaaS companies all have lower margins. That’s not a problem for SMBs. That’s a tension of the positioning.
But if your support quality is worse than that of other SMB SaaS companies, that’s a problem to solve.
Question 5: What Would You Have to Change to Eliminate This Tension?
If eliminating the tension requires changing core business positioning, it’s probably a tension you need to manage rather than a problem to solve.
Example
“To improve margins, we’d need to either move upmarket to enterprise, or require annual contracts, or build a services business.”
All of those are fundamental planned changes, not operational improvements.
You’re not solving a problem. You’re considering changing your strategy.
That’s different from “we can fix margins through operational efficiency.”
Real Examples: Problem or Tension?
Example 1: The “Sales Cycle” Problem
Company: “Our sales cycle is too long (120 days). We need to fix it.”
Is this a problem or tension?
We checked competitors with identical positioning (mid-market, similar product complexity). Average sales cycle: 105-130 days. Tension, not a problem. A long sales cycle is inherent to selling to the mid-market with complex implementation.
Option: Accept the 120-day cycle or shift to SMB positioning with 30-day cycles (but at lower pricing). They chose to manage the tension. Built forecasting and cash management around 120-day cycles instead of trying to compress them.
Example 2: The “Customer Support Cost” Problem
Company: “Our support costs are 18% of revenue. We need to fix it.”
Is this a problem or tension?
We checked competitors:
- Competitors with similar product complexity: 16-20% support costs
- Competitors with simpler products: 8-12% support costs
- Competitors with AI-powered support: 12-15% support costs (but with lower satisfaction)
Their support costs were in line with their positioning (as a complex product requiring human support).
Problem: Not fixing support costs. The problem was: Should they simplify the product to reduce costs, or maintain complexity and accept higher support costs?
They chose simplicity. Reduced support costs to 12%. Discovered customers valued the complexity they removed. Reversed course. Accepted 18% support costs as pressure of their positioning.
The Cost of Solving Unsolvable Tensions
Companies that try to solve inherent tensions waste enormous resources:
Example: Trying to Solve Positioning Tensions
A company decided to compete in both SMB and enterprise simultaneously. Tried to solve the tension through “flexible pricing model” and “configurable product.” It cost $3M in product engineering, sales infrastructure, and marketing complexity. As a result, they failed to capture either segment effectively. Lost to focused competitors.
What they should have done was decide between SMB and enterprise. Build for that market. Accept the tension of not serving the other.
Example: Trying to Solve Model Tensions
A company tried to be both product-led and sales-led. Tried to solve by hiring both the sales team and building an onboarding flow. The cost was a schizophrenic product development. Sales team pushing feature requests for the enterprise. Product team pushing simplification for self-serve. Nothing was executed well.
As a result, they lost to both product-led competitors (better onboarding) and sales-led competitors (better sales process) What they should have done was pick one model. Build for that. Accept that choosing sales-led means giving up the speed of product-led adoption.
How to Decide: Problem or Tension?
Here’s the decision framework:
Step 1: Name the Challenge
“We have lower margins than competitors” (not “we need better operational efficiency”)
Step 2: Check if Competitors With Your Positioning Have This Challenge
Yes → Likely a tension
No → Likely a solvable problem
Step 3: Check if Competitors Have Tried to Solve It and Failed
Yes → Likely a tension
No → Could be either.
Step 4: Assess What You’d Need to Change to Eliminate It
Requires changing core positioning → Tension you manage, not problem you solve
Requires operational/execution changes → Problem you can solve
Step 5: Calculate Cost of Solving vs Cost of Managing
The problem was the cost of solving < cost of living with problem → solve it.
And tension remained the cost of solving > cost of managing → manage it
Why This Matters for Competitive Strategy
If you misdiagnose tensions as problems, you waste resources trying to fix the unfixable while your actual problems compound. If you misdiagnose problems as inevitable tensions, you accept limitations you could overcome.
Competitive intelligence reveals which is which by comparing your situation to others:
- Are you the only one struggling with this? (Problem—fix it)
- Does everyone in your positioning struggle? (Tension—manage it)
- Did competitors try to solve this and fail? (Tension—manage it)
Frequently Asked Questions
How do I know if I’m facing tension or just a lack of resources to solve a problem?
Compare your situation to competitors with identical positioning who have solved it. If competitors with the same market role, the same customer type, and the same business model have solved the challenge, it’s a solvable problem, and you’re lacking resources or execution. If no competitor with your positioning has solved it, it’s likely a tension inherent to that positioning.
What’s the difference between a tension and an excuse?
A tension: Something inherent to your positioning that all competitors with similar positioning struggle with. An excuse: Something you claim is inherent, but competitors have actually overcome. Test by research: Have others solved this? If yes, it’s an excuse, and you need to solve it too. If no, it’s a tension, and you need to manage it strategically.
Should I try to solve a tension if I have a competitive advantage by doing so?
Yes, but recognise the cost. You’ll become a different company in a different market status. That might be the right strategy. But know what you’re choosing: You’re not solving a problem within your positioning. You’re changing your positioning. Make that choice intentionally, not accidentally.
How do I manage tension strategically instead of trying to solve it?
Build your business model around it. If you’re an SMB and have lower margins, build unit economics assuming 60% gross margin, not 70%. If you have long sales cycles, build cash forecasting and financial planning around a 120-day cycle. And if you have higher churn, build growth numbers that account for replacement costs. Manage the tension by designing a strategy around it.
What if managing tension puts me at a competitive disadvantage?
Then you’re facing a positioning choice: Change your positioning to eliminate the tension, or accept the disadvantage and win through other means (differentiation, service, community, speed). Some companies win despite tensions through excellence in other dimensions. That’s strategic clarity.
Can tensions change as the market evolves?
Yes. Tensions might become problems (market changes make tensions solvable), or problems can become tensions (market commoditization makes differentiation impossible). Monitor quarterly: Is tension still inherent to my positioning? Or has something changed that makes it now solvable?
How do I explain to leadership that we have an intrinsic tension, not a solvable problem?
Show competitor data: “Three competitors with identical positioning all have this same challenge. Competitors with different positioning don’t have it. This reveals it’s inherent to our market position, not an execution problem.” Frame as strategic clarity, not limitation: “Now that we understand this is a positioning tension, we can design strategy that manages it rather than wastes resources trying to solve it.”
What if I discover I’m attempting to solve a tension, and the cost of solving it exceeds the benefit?
You’re making the right discovery. Stop trying to solve it. Assign resources to problems you can actually solve or to competitive advantages you can build. This is where most companies waste the most—trying to fix basic limitations instead of optimising within those limitations.
We are Octopus. The Global People-Powered Competitive Intelligence Agency.
Outsmart your competition. Make the unknown known. Octopus helps you gain clarity in complex markets. With clients and tentacles around the world, we deliver sharp, actionable competitive intelligence through a blend of deep primary (HUMINT) and secondary research. If you’re looking to make smarter decisions, beat the competition, and reduce uncertainty, we’re the partner you want on your side.
Key Takeaways
- Companies often confuse inherent tensions with solvable problems, leading to wasted resources.
- A SaaS company’s failed attempts to solve its margin problem illustrated the mistake of misdiagnosing tensions in its market role.
- Competitive intelligence helps identify which issues are tensions versus solvable problems through competitor analysis.
- To effectively manage margins, companies must either accept lower margins aligned with their positioning or strategically change their market approach.
- Recognising these distinctions allows businesses to optimise their strategies rather than waste resources on unfixable challenges.
