Hang around Play Bigger long enough, and you’ll hear one of us quote this stat: 76% of market value goes to the market leader. That’s peer reviewed data we published in the Harvard Business Review and it still holds true to this day. But why does this happen? And how does Category Design drive the kind of scale that can lead to market domination?
In this article, we’ll look at four core mechanisms that drive exponential growth, and underpin category creation strategies.
Nobody thinks as much about your product, pitch, or approach as you think they do. In fact, if you believe the late Nobel Laureate Daniel Kahneman, the vast majority of people would prefer not to think if given the choice.
This has a profound impact on business: When you show up looking somewhat like something people already get, you instantly become that thing. Once categorized you are either ignored (I already solved that problem, don’t need a new one of those), sent to procurement (these are all the same, which one’s cheaper / more trustworthy), or compared to dominant players (this is like that other thing, I know that other thing well, I’ll stick with that one).
Being categorized does not scale. Because the economics favor those who HAVE ALREADY SCALED.
On the other hand, when you show up to solve a different problem that people feel deeply, they have no category for that. There is no shortcut. They have to slow down and think about what you are saying in order to comprehend it. And instead of sending you to procurement, they write a line-item in their budget.
This is how, in Kahneman’s terms, you move from a System One outcast to a System Two darling.
When you design a category, you aren’t merely designing a marketing strategy, you are creating a point-of-view that influences every facet of the company. You have a blueprint and a North Star for developing products designed to solve a specific problem in consort.
Which means you also have an innovation brief that can feed a compounding pipeline of products and ideas delivering exponential scale. This stands in stark contrast to a problem we frequently encounter as companies scale.
We call it the bag of doorknobs problem.
Great companies, we are told, listen to their customers and build products based on what the market demands. Which is how a company originally created to solve one problem, can suddenly find itself with a collection of “customer demanded” products that have little to do with one another. There is no coherent whole and in most cases, the company loses its ability to scale because it has no compass for growth.
If you try to do everything, as they say, you probably aren’t going to end up doing much of anything. And that is why product led design can only get you so far - customer insights must be combined with category insight, and too often we see the second part of the equation missing.
It’s people who scale companies.
Coming to work everyday to do something that they believe in, and accomplish something they strive for. Yes, financial incentive is an important component of compensation, but it’s far from the only component.
People work and stay at companies when they understand and believe in the vision. And having a clear point of view on the problem you solve, and the category you are creating gives the people at your company something they can latch on to - or reject. There is no gray area, but for those who stay, they are staying not just because you pay them well, but because they understand and believe in what you all are trying to achieve.
Creating a better version of a thing that already exists is not most people’s idea of fulfilling work. But creating an entirely new category to solve something no one’s solved before? That’s what the best and the brightest sign on and stick around for.
The truth is, no matter how original an idea seems, chances are there’s another founder out there circling around the same thing. This is not new news. Calculus got invented twice at almost the same time - good ideas are in the ether, or the collective unconscious if you prefer Carl Jung - and whether your particular idea has been picked up by anyone else yet is beside the point, because it soon will be.
Investors know this. They know it because they hear pitches that are brutally similar in their speciality areas. Day in and day out. And when they do hear something new, they worry about moats, and how defensible a business model is.
While we all know it’s tough to be a founder in this environment, it’s equally tough to be an investor.
Here’s how to make their job easier: by painting a picture not of features, benefits or production costs, but of customer problems, the value of their solutions and the market you can create. Because when you can show them market potential, any entrant into that new market will benefit the category leader - which is more often than not, the company that defined it in the first place.
To scale, you need money. And to do that, you need to demonstrate potential – the ability to exploit the growth of a market and any competitors who try to follow-you.
“It’s better to be first than it is to be better” - Al Ries & Jack Trout
When you design the category, you get to be first which comes with several advantages. First, you are able to set the rules of the game and organize your business strategy to exploit those rules before anyone even knows your category exists. You have a tremendous headstart, while competitors attempt to react to the category and adapt to your rules, you are running at 100 MPH delivering value to customers, and they return the favor with their business.
This initial advantage creates the conditions for the early win. The category may still be new, but it’s rise becomes intertwined with yours: category and category designer begin to become inseparable in customer minds.
Once that starts to happen, new entrants to the category move from threats to be defended against, to validators of the category you created and now dominate. Rather than steal share from you, they help grow the overall category market-cap, while the Category King sits on top with that 76% market share we talked about earlier.
The longer a leader sits in that king position, the further optimized they become to exploit its value. Their operation evolves to maximize the category promise and efficiently solve problems, which further reinforces the leadership position.
Great categories are not stagnant (dying categories are). That’s the very idea that makes category design possible in the first place. Once a category is established and a category king crowned, that leader MUST continually create and evolve their categories.
As we talk about often at Play Bigger, categories have lifecycles, and there is nobody better positioned to lead a category’s evolution than the kings who designed it in the first place. Examples of this are everywhere, from Apple’s continuous category creation machine, to recent Play Bigger examples like DocuSign (from eSignature -> Intelligent Agreement Management) and Cloudflare (from network security and reliability -> the Connectivity Cloud).
The company that originally created the category is in the best position to continue to develop it. To show the world what’s next. How new problems can be solved, built on the shoulders of the original category, a brand new market emerges to once again create something new.
Category design can continue to drive scale far after the original category is created. And even after that category has given way to something that is itself new and different.
Scaling is what it’s all about today. Founders want it, investors fund it and customers benefit from it. But traditional growth strategies that overly rely on product-led-growth, without considering category potential miss a huge opportunity to sustainably grow and reach outsized market returns. While the opportunity to steal share within an existing category may seem like a logical strategy, in the real world market place there are many forces at play that make it difficult to pay off. On the other hand, designing something that is altogether new to solve an altogether new problem, and framing a category around it is proven to drive outsize scaling results. The six drivers we’ve identified in this post give category designers and the companies they lead to an enduring advantage that contributes to lasting dominance and financial returns.
What are the best practices or pitfalls to avoid that you have experienced in your category design journey? We’d love to hear them.