Category creation: 6 ways to tell whether it’s the right strategy for your business

August 7, 2019 2:00 pm

There is no such thing as an original idea anymore — right? Well, tell that to companies such as HubSpot, which launched more than a company but an entire movement around inbound marketing. Or consider Uber, which introduced the world to the concept of ridesharing and somehow convinced us all that getting into cars with strangers was OK.

Companies such as HubSpot and Uber created so much more than just new products and technologies; they created entirely new market categories. But how? They used an emerging practice called “category creation” that has since become the holy grail of modern marketing.

Category creation is a business strategy that focuses on positioning and evangelizing a brand-new problem observed in the marketplace, in addition to the solution for that very problem. The output is an entirely new industry of products and services — distinct and differentiated from anything that had ever come before — with a single category-defining company positioned as the winner in the market.

According to an article on Harvard Business Review, companies that were instrumental in creating their categories accounted for 53 percent of incremental revenue growth and 74 percent of incremental market capitalization growth. For startups creating categories, the value of dominating a market while scaling can result in operational benefits as well. It can lead to everything from greater access to funding to more resources that can help attract top talent. Naturally, this can also lead to more market share and higher valuation multiples. 

Beyond any and all quantitative measures of success — financial or otherwise — there is undoubtedly a higher calling of category creation for customers in the community and employees who are enrolled in the mission. Customers of category creators benefit from a company in the marketplace seeking to help them solve complex problems, get promoted and self-actualize in their own lives and career journeys. Employees at category creators have a unique opportunity to unleash their creativity in the workplace, participate in an incredible corporate culture and launch a movement behind a new product or service. 

The good news is that anyone can participate in category creation, even companies that are in their infancy or are in the early innings of bringing a product to market. While developing a 10x product is an incredible advantage (see Slack, Uber or Airbnb as examples), it’s not a prerequisite.

So, how do you know if category creation is the right strategy for you? The truth is that most entrepreneurs, executives and marketers don’t set out to create a category from the onset, but rather see patterns in the journey of planning the business that signal there’s a category to be created. These signals are observations of a unique problem in the market that no one is paying attention to in a meaningful way.

Here are six signals that may indicate category creation is the right strategy for your business:

1. Few or no competitors in your space. Although there may be a handful of small, early-stage companies addressing a similar problem (or at the fringes), there is no incumbent “800-pound gorilla” brand that dominates the market.

2. Low search volume/cheap(er) ad inventory. Typically, no one is searching for the problem you solve by name, which makes your ability to buy traffic exponentially harder than those operating in established markets.

3. No press or media coverage. There are no beat reporters or media outlets covering your space (although, you may have some early influencers who can serve as evangelists and brand advocates).

4. A marginalized buyer no company is paying attention to. Do your buyers or users have power within the organization? Is there a company in the marketplace focused on making them heroes? Are they underserved?

5. Small (but passionate) niche of people who ‘get it.’ Are there small communities, consultants or influencers who are out ahead of any company talking about the problem?

6. Larger population of people who don’t ‘get it’ (right away). Our brains are wired to identify cognitive references when approached with an original idea. You may find that your friends in the industry, partners or maybe even investors can’t understand the full scope of your vision but instead try to compartmentalize the vision into an existing category.

In the end, you may find that category creation is not for you — an observation to which I say congratulations! Anyone who has taken this challenge on will tell you that category creation is a long and sometimes painful road. Launching a disruptive product into an existing market is a fine way to create value for all stakeholders around your business.

But if you’ve chosen to take the red pill and create new markets of products and services, welcome. You are not alone on your journey, and remember there’s no better strategy that results in faster growth and higher valuations for the company on top. 

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This post was written by Keywords