Something incredible actually:
Category Champions are born. Almost half of the category dominating companies we’ve been tracking at Play Bigger for the last 20+ years, were founded within 12 months of an economic downturn. A big proportion of category leaders are born during comparatively small window of time.
Why does this happen?
Four key factors:
THE MONEY TRAIL: In the last quarter of 2022, money continued to reach seed and series A startups, helping to set a new annual record in this type of funding, while at the same time, VC backed later stage startup funding dropped off dramatically. Longer term investments in earlier stage companies are more palatable when investors are bearish on short-term returns. As VC firms slow their investments, they may also invest more in fewer, but more promising enterprises.
NEW PROBLEMS: Categories are built on problems, and any major change - an economic downturn among them - begets new problems, identifying and solving these problems has huge upside as Play Bigger research has shown: 76% of a categories market cap goes to the category leader.
CATEGORY FOLLOWER DIE OFF: When a category shrinks in a downturn, it's the followers who suffer the most, fighting it out over 24% of a diminishing market cap.
CATEGORY PRUNING: Meanwhile, poorly defined, understood or adopted categories will fail in a downturn and leave customers looking for new kinds of solutions, which category design is itself designed to do.
For early-stage companies with category potential - the Category Entrants as we call them at Play Bigger – these are ideal category design conditions. We predict a larger proportion will make it through to the next stage of category development as a direct result of these conditions.