The differentiation slide in your overview deck needs to answer the question:
“Why is what you do important enough for customers to choose you over you competitors”?
Most startups can differentiate either by going after a different customer or by building a different product or solving a different problem.
Your differentiation will stem from the insights you gathered about the problem or the customer which you uniquely believe no one else has. The problem you are trying to solve (for e.g. search on the Internet sucked 15 years ago) leads to an insight (for e.g. Larry Page believed that # of links from other pages results in a higher authority page than others), which will help you create that differentiation.
If you have no better insight than others and merely are trying to execute better, it will result in a tremendous amount of capital consumption.
Here are 5 important questions investors are thinking about when it comes to differentiation on hearing your pitch:
1. Can someone other bigger company or competitor adopt the differentiation quickly and eat your lunch?
2. Is the customer segment differentiated enough? Is there a real pain?
3. Is the product differentiated enough to have a 6-12 month lead over others?
4. Is the framing of the problem different enough to make this a large opportunity?
5. What is the one insight they have gathered that’s differentiated enough that no one else knows about?
Which is why many entrepreneurs believe patent pending algorithms are the best differentiation. That’s defensible, but not differentiated for most parts.
Unlike customers, for whom the differentiated features in your product along with customer service, support or community is what helps them make the decision, investors are looking for differentiation to fend off competitors.
How you differentiate (to your customers) may be not the same as how you communicate differentiation to your investors. In reality, offering better customer service, creating a community and positioning your product differently will all be ways to differentiate, but the communication of differentiation to your investors will have to be around the large moat you can create around your company so you can fend competition.
The best ways I have often seen differentiation presented is by creating network effects in your business (eBay, Facebook, Twitter, etc.) or by proprietary algorithms (Google, VMWare) or being a first mover (Uber, AirBnB, etc.)
If you can articulate 2 of these 3 clearly – being a fist mover and having network effects or having proprietary algorithms and having network effects, then your investors will believe you can have a sustainable business.