Most successful companies are not category creators – even though they may look like that to folks that come from large companies. Startups should be very, very wary of advice they get around this.
I recently had two startups come to me talking about their attempts “category creation,” for example, when what they were really doing is carving out a clearly defined niche in an existing market.
There’s nothing wrong with playing in a niche when you are still at an early stage, of course — after all, how do you think most big companies got their start? But it is not category creation, and should not be confused as such. You are still measured by many of the criteria of the overall bigger category and you still need to be vary wary of the leader in the overall category, because they have the potential to take over your niche. Ignoring that threat by convincing yourself that you niche is an entirely new, specially design category, doesn’t make that threat disappear.
Niching in an existing category is very different from category creation. Category creators need to sell the problem before they can sell their solution – if customers were aware of the problem then the category would already exist in their minds. In other words, if there’s no awareness of the problem, there’s no category. If there’s no category, you can’t sell. “Nichers” on the other hand, just have to prove that there are customer segments in a category that are underserved by the market leader and that can be better served with a specialized solution. That’s much easier to do.
The beauty of not creating a category when you are small is that you can draft off of what customers already know about a market category without having teach folks why a whole new category is needed. And just because you start out playing in a niche doesn’t mean you can’t move on to owning a category later. Once your company is big and you have significant resources and clout in the market, there is less risk in shifting gears to either take on the existing category leader or create a new category of your own design.
More Than One Way To Scale
There are many, many examples of category creators that were playing well in a niche when they were generating less than $100 million in revenue. And let’s be honest: there is an incredibly small percentage of startups that actually make it to $100 million revenue. In fact, the majority of the products you use and love today make less than $100 million in revenue.
I read a claim that less than 35 companies had successfully created a category between 2000 – 2015. The numbers would make you think that this isn’t a very common or successful way to build a company. Yet I’ve seen Silicon Valley consultants come to my local accelerator and tell a room full of sub-$500K revenue startups that that’s the only way to build a company. This is absolute nonsense!
Having a point of view on a market and a plan to differentiate and win a well-defined group of customers is called positioning. There is no magic category voodoo pixie dust that lets you skip doing this work.
As I recently told the AdvanceB2B podcast, positioning is based on identifying who your true competitive alternatives are and what your key unique differentiators are when compared to those competitive alternatives. It’s also a question of the value those differentiated features enable for your customers, the segment of potential customers that really care about it and the definition of the exact market that you intend to win
I’ll be exploring this in more detail in my upcoming book Obviously Awesome: How To Nail Product Positioning So Customers Get It, Buy It and Love It. The concept of positioning isn’t new but historically startup haven’t had a good methodology to put those concepts into action. Category creation is one style of positioning but it’s not the most common and certainly not the easiest style for resource-starved early stage startups that looking to survive long enough to thrive.
This post was adapted from a series of posts on Twitter.