Is category creation a viable business strategy? It is, but…

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By now, you’ve heard everything experts have to say on marketing strategies for startups. You need to disrupt, to make things better, be the first to get the product to the audience.

But there is another way. It’s called category creation.

The term coined by the authors of Play Bigger means you address the customers’ need they haven’t been previously aware of. Think Airbnb and the travelers’ desire to feel at home wherever they go. Or remember the last time you’ve tried to hail a cab by jumping off the curb instead of using the Uber app.

HubSpot, IKEA, Pixar, Netflix, Google are all examples of brands that created a new category.

If you are tired of the same old marketing strategies for startups and want to go big, let’s go over the basics of category creation that might just pave your way into the unicorn club



CATEGORY CREATORS WIN BIG

Everyone and their dog have cited a 2013 study by HBR that claims category-creators make up for 74% of incremental market cap growth and 53% of the incremental revenue growth. However, I find the numbers from Play Bigger far more illustrative:

  1. Apple got 91% of the smartphone market profits in 2014
  2. Uber was valued $51 billion while Lyft was worth only $2 in 2015

The numbers have changed a little over the years, but the category leaders remain just that. They enjoy the majority of the niche profits, while runner-ups have to settle for much less. The remaining players’ market and profit shares are so negligible they might not even make it to the pie chart.
Category creators carve a new market and reap major profits.

Everything else can be left for further user touch points. Think about Google with its minimalist interface that consists of a logo and a search bar. Yahoo, on the other hand, can be overwhelming, as the search bar gets lost within a sea of info blocks.

BUT FIRST MOVER ≠ FIRST WINNER

In a race to market launch, many startups confuse first-comer advantage with first-winner advantage. As a result, 47% of the first-movers fail, while the failure rate among fast followers is only 8%.

Creating your market niche will mean nothing if you don’t capitalize on the opportunities being the first-mover brings. You can turn them into long-term advantages for your business if you:

  1. Make most of your technological head-start and keep innovating
  2. Defend your position through patents or exclusive partnerships
  3. Turn your early adopters into long-term customers with annual contracts

The success of your category creation efforts will also depend on the market adoption pace and innovation pace in your industry.

In some cases, the product’s evolution outpaces market adoption, projects fail or get pushed back because you are too far ahead of the users. Google Glass is one example among startup marketing case studies for a product released ahead of its time.

However, if the audience is as fast at adopting new products as you are in creating them, the industry can turn into a dogfight with no clear winners and losers. Mobile games, fitness trackers, and music streaming apps see new trendsetters and winners every few years, if not months.

Most category creators turned unicorns present an innovative product to a slow-moving market. They have to invest heavily in educating early adopters, but this startup strategy pays off in the long run.

According to Dharmesh Shah, founder and CTO at HubSpot, category creation is a doable startup strategy. Though it is a higher risk approach, it provides bigger rewards.

CATEGORY CREATORS SOLVE UNADDRESSED PROBLEMS

If you think of category creation as just another one of the marketing strategies for startups, you are unlikely to become a category king. Instead, think of it as a framework for building your company and product around the big idea that sets your solution apart from everything else already on the market.

Most innovative marketing strategies call for disruption, so you make your product that much more efficient, stable, high-performing. However, when faced with a choice between an established industry leader and your new solutions, most customers will go with the option that’s been around for years. Some, of course, will always choose the cheapest product.

Category creation is about making a different product, not a better one.



Just remember an iconic Apple campaign, Think different. Now think what sets Uber apart from a taxi service, what makes people rent Airbnb apartments instead of hotels, what urges you to buy a new iPhone before anyone else.

Before you decide that category creation is too complicated for a startup, consider different ways you can implement the concept. While Apple created a new category through technological innovation, Starbucks was not the first coffee shop. The company reinvented the coffee drinking experience and took the world by storm. LUNA Lemon Zest bars, instead, capitalized on the unmet need among fitness enthusiasts for a plant-based gluten-free and nut-free protein bar. Vitamin Water went the way of full-out category creation by infusing boring drinking water with original flavors and nutrients that are supposed to restore electrolytes post-workout.

BUT CUSTOMER EDUCATION COSTS EXTRA

The problem with creating a category of your own is that there is no established market. While there is a need, most potential customers either do not consciously realize it or cannot imagine a possible solution. As a result, your job as a startup founder becomes come complicated. You can’t just offer a solution. You have to spend time and resources educating users about the problem.

In fact, defining the problem you can solve is the first step of creating a new category. Instead of a pitch about your product and its incredible features, explain what troubles your potential buyers. The best startup marketing campaigns tell stories in short, simple words.

  • Uber started because Travis Kalanick and Garrett Camp had trouble hailing a taxi on a freezing night in Paris, and finding a cab in San Francisco was as impossible as getting a barman’s attention on a Friday night.
  • Monzo created a smart bank because traditional banks are slow and unhelpful. You have to waste hours to open an account or make a deposit.
  • Airbnb was a way to feel home away from home without hotels’ washed out bed sheets, leaking faucets, and unreasonable charges.

Even though now we can’t image our lives without these simple solutions, at first, the companies had to devise a unique marketing strategy to explain why the traditional way is no longer viable when there is a different solution. This means additional expenses on quality content, ads, events, and more. Instead of raising money for development and distribution, you will need a larger marketing budget.

If you embrace storytelling and category creation as a startup strategy, you can build a thriving community that will grow over time and secure your position as the category king.

CATEGORY DESIGN SCALES UP TO LONG-TERM SUCCESS

Upon creating a new category, you can follow one of two development and marketing strategies for startups:

  • Expand your category to increase the total addressable market by introducing new products or features and making them more attractive for mass adoption.
  • Harvest the category you have created for a long time until it loses potential and investing the profits into a new business or category.
  • Both approaches can be successful in the long run, though the first one requires constant work on expanding the offering and the market, while the latter capitalizes on the achieved success.

Google, Facebook, Uber are all examples of companies that continue their category design and expansion efforts, making customers come back for more. No one can uproot these industry leaders from their positions on top unless they come up with new categories. Twitter and Instagram tried to overthrow Facebook but ultimately carved new niches for themselves without dislodging the category king.

VMware chose to follow the second strategy and make most of its success in the new virtualization industry. Instead of creating more revolutionary solutions, the company offers small improvements and expands its marketing and sales efforts to increase profit margins and keep customers coming back and spending more and long as possible.

Many visionary founders capable of category design later transfer the reins of the company to accomplished harvesters who can coast on the initial innovative approach and keep the business on top. Bill Gates and Steve Ballmer, Steve Jobs and Tim Cook, Diane Green and Paul Maritz are just a few examples of this strategy.

BUT THE FIRST STEP IS CRUCIAL

Earth-shattering and attention-grabbing product launch is essential for building a category. You have only one chance to make the first impression after all the hard work that went into research, design, and development.

To pull off a successful category launch, you should:

  • Choose your target audience right and gather as many potential customers as possible in one place. Trade shows and industry conferences are good options to consider.
  • Create big, bold, and different content that sets your product apart from anything already on the market. Inspire awe through talented speakers, unique products or promises.
  • Focus on the problem first before offering a solution. This is where your education of the customers starts, and you need to make your message stick in their minds.
    Plan three to six audience engagements six months apart to establish the category and ensure your marketing and sales campaigns keep gaining momentum.


WHAT DOES THIS ALL MEAN FOR YOU?

As far as marketing strategies for startups go, creating a new category is a challenging but rewarding task.

If you want to give it a try, keep in mind,

  1. Category creators carve a new market and reap the significant part of the profits, but they need to secure their position against fast followers.
  2. Category creation is about making a different product, not a better one, but you can also redefine user experience or use sub-segmentation to carve out your niche.
  3. Upon creating a new category, you can either keep expanding it through innovation or extend industry harvesting as long as possible.

Do you think building a category is right for your startup? Please, share your startup marketing strategy ideas and experience in the comment section. And don’t forget to subscribe to our newsletter to be the first to receive the fresh batch of FreshCode insights.

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