In 1953, Swanson Foods had a 520,000-pound problem.
The company over-ordered turkeys for Thanksgiving and were now stuck with a massive supply of turkeys they couldn’t sell. They loaded the excess meat onto frozen railcars and moved it back and forth across the country, expensively buying time until they had a solution.
Management sent out an urgent notice, asking anyone in the company for a viable solution. A salesman named Gerry Thomas came up with one.
Inspired by the meals provided in the military, Thomas proposed packaging the turkey in a tray alongside a serving of vegetables and carbs, freezing it, then selling it to consumers.
Brilliant, right? Except Swanson wasn’t the first to think of this. Other food companies had developed similar pre-packaged frozen dinners before. But there were two things happening in 1953 that would change Swanson’s business forever.
First, higher education levels led to more women joining the workforce, and many women already in the workforce wanted to stay with the jobs they secured during WWII.
Second, a new technology was emerging that would transform household entertainment: the television. In 1950, just 9% of households had TVs. By 1954, that number had increased to 56%.
Realizing the impact this technology would have, Swanson brilliantly called their product “TV dinners” — because you would probably be sitting and enjoying your meal in front of the TV — and went onto sell over 10 million in their first year.
While other food products were marketed to the “housewife” persona of the era who cooked full meals from scratch every evening, Swanson realized there was a market of busy women who were on-the-go, and advertised their TV dinners to them with messages like, “I’m late—but dinner won’t be.”
Swanson didn’t find this level of success by marketing that their turkey was bigger, better, and tastier than other companies. Instead, they completely redefined how food was consumed in the first place. They paved the way for the TV dinner market which continues to generate over $4.5 billion in annual sales to this day.
What Swanson did is known as category creation.
In this post, we’ll cover everything a founder needs to know about creating and dominating a category.
Here’s what we’ll be discussing:
- What is category creation?
- Why do categories matter?
- When should you design your own category?
- What are examples of successful category creators?
- How do you create your own category?
What is category creation?
Category creation is a business strategy that focuses on positioning and evangelizing a problem in the marketplace that’s not been addressed by existing solutions. The company defines, names, and pioneers this new category, and influences their target market to abandon old ideas and products and embrace a new way of doing things.
Traits of category creators:
- They don’t think in incremental progress, they think about exponential opportunity.
- They don’t think about evolution, they think about revolution.
- They don’t just sell better, they sell differently.
- They don’t play by the old rules but make up their own entirely new game.
- They understand that the best product doesn’t win. The best-positioned product does.
- They proactively define a new market, then nurture the category and position themselves as the leader.
Is category creation the same as disruption?
We may think that disruption is exciting, innovative, and something new — but it’s really just a tired old tale that cycles through every industry.
Market incumbents grow comfortable after years of owning their spot in the industry. Yet they fail to innovate, which allows a new company to come in and challenge their position.
The challenger promises a product that’s better, faster, and cheaper. The incumbents may be able to fend off the first attack due to their size and resources but eventually, the challengers eat away at their market share.
Then “nature” happens. The challenger startup that was once the disruptor becomes the company with a target on their back. Eventually, new startups set out to disrupt them. The disruptor becomes the one who gets disrupted. The market becomes more and more commoditized and fragmented.
This cycle of disruption continues until a category creator comes in and upends the entire industry. But these new category-creating companies aren’t focused on disruption for the sake of disruption. They are instead focused on creating new solutions by redefining problems that define the existing category in the first place.
Uber didn’t just enter the market with a goal of being a better taxi company. They didn’t just promise nicer cars and friendlier drivers. They reimagined the problem that consumers expected taxis to solve: getting them from point A to point B. Then they built a new solution, free from the traditional rules and principles taxis lived by. Disruption happened as a byproduct of their new category.
Jack O’Neill was a surfer living in Northern California. Looking for a way to spend more time in the freezing water, he popularized the modern wetsuit. He didn’t set out to disrupt anything. The dude just wanted to surf when the water was cold. (Had to include this epic photo of Jack O’Neill. Most great category creators have eyepatches.)
This is what category creation is all about. It’s about creation. Not disruption.
Category creators accept that the best product doesn’t always win. They realize that getting into the ring with the market leader and slugging it out feature by feature is a losing proposition.
Instead, they leave the incumbent in the ring, anxiously waiting for the challenger’s arrival. Then they go to work building their own stadium with their own ring and a totally new set of rules to play by.
This is the path that many of the most well-known companies in history have followed. They don’t just take away market share from incumbents, they build entirely new markets that didn’t previously exist.
They solve problems we didn’t even know we had or didn’t pay attention to. They give us a new way to think and change our perspective of the world. This is what true category creators do.
Why do categories matter?
Whether you have a B2B or B2C company, at the end of the day, you are marketing to humans. Most of them have brains.
In an oversaturated and overstimulated world, the human brain uses categories as mental tags to organize information. Categories are how new companies and products are discovered.
In the book Category Creation: How to Build a Brand that Customers, Employees, and Investors Will Love, the author explains how in the early days of Gainsight, top tier analysts advised them to take a challenger position in one of three categories: customer support, customer relationship management (C.R.M.), or recurring revenue management (R.R.M.).
None of the categories felt right, so they decided to pioneer their own category called customer success management (CSM), which, unsurprisingly, they now dominate.
They didn’t want to be forced to play by the rules of the existing category because those rules didn’t apply to them. So instead of being forced to play a game they didn’t want to play, they simply invented their own.
Our brains look for similarities and patterns that allow us to group information together. These groups become categories and, whether you like it or not, your company is being placed in a category inside the mind of who you are trying to reach.
If you don’t work to position yourself, someone else will position you. And that’s a risky thing to leave up to chance.
What is the ROI of owning a category?
Tim Ferris asks all his podcast guests one question: if you could put any message on a billboard, what would it be?
When he asked Marc Andreessen, Marc said “Raise Prices”.
Andreessen elaborated: “… the number one theme with our companies have when they get really struggling is they are not charging enough for their product. It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume. And we just see over and over and over again people failing with that because they get in the problem we call too hungry to eat. They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it. And so they can’t afford to hire the sales rep to go sell the product. They can’t afford to buy the TV commercial, whatever it is. They cannot afford to go acquire the customers.”
Sounds simple enough but when you enter into a market where customers have expectations and benchmarks for what they are willing to pay to solve their problem, you are forced into a pricing war with established players who can most likely outspend and undercut you. For a scrappy startup with limited capital, this can be a race to the bottom.
When you create your own category — you are defining the problem in a new way which gives you the ability to set the price standards on your own terms without the price anchoring of established incumbents. You are building the market so there are no price expectations.
Imagine the longterm impact on your financials if you were able to charge 20, 30, or 40% more? This is the potential that category creation brings to your business.
While there is certainly a purpose behind a companies quest to create a new category, they aren’t just doing it out of the kindness of their hearts.
Defining and owning your own category pays. Big time. Research published by Harvard Business Review found that companies who were instrumental in creating their categories accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth.
Creating a new category doesn’t just mean you make the world better. You also end up creating incredible wealth for yourself and your investors along the way.
Here are some of the areas that you can see impacted by creating a category:
- Your email list will grow.
- You will increase engagement with your current email list by providing valuable content that’s not all about you and your product.
- Your pipeline of new customers will grow.
- Your current pipeline of customers will close faster.
- Your existing customers will increase in value.
What are examples of companies who created, then owned, categories?
Regardless of whether you have a B2B or B2C product, there are incredible lessons that all founders can learn from these examples.
Burton — the “snowboarding” category.
Jake Burton Carpenter is credited with developing the economic ecosystem around snowboarding as a culture, sport, and lifestyle. And as he did that, his company Burton became the premier snowboard manufacturer.
As ski resorts outlawed the new sport from their slopes, Carpenter went to work lobbying them to rethink their rules. In 1985, only 5% of ski resorts permitted snowboarding. In just two years, 95% permitted it. As the industry grew, Burton actively funded snowboarding competitions and built snowboard parks with halfpipes and jumps. He also invented the binding which allowed snowboarders to make adjustments to improve their performance.
Founder Lesson: Take responsibility for solving problems that prevent the adoption of your new category (like lobbying ski slopes to allow snowboarders). Doing this increases the size of the community that will form around your new category.
Five Hour Energy — the “energy shot” category.
When Manoj Bhargava launched 5-hour Energy, he knew he didn’t want to compete head-to-head with the established energy drink brands like Red Bull and Monster Energy. He narrowed his focus on the end customer and realized that many weren’t looking for a beverage that tasted good, they were simply looking for a jolt of energy.
So instead of battling for limited space next to other beverage brands, he created the energy shot category and had the product placed near the checkout counter.
Founder Lesson: Relentlessly obsess over the end customer, understand what they are truly looking for, and build a product around that need. Then make the competition irrelevant by refusing to compete head-to-head.
Hubspot — the “inbound marketing” category.
In 2006, Brian Halligan and Dharmesh Shah created their marketing software company HubSpot. They then published Inbound Marketing: Get Found Using Google, Social Media, and Blogs, offered marketing certification programs and began hosting their annual conference, appropriately called Inbound, that brings the biggest names in marketing together to discuss all things inbound marketing.
If you are a marketer and search for anything on Google, there’s a good chance you will find yourself on their website. They’ve blanketed the internet with top-of-funnel content that positions them as the definitive resource for marketing.
Founder Lesson: Become the ultimate resource for your target customer by creating content that answers their questions and helps them get better at their job.
Birds Eye — the ”frozen food” category.
From 1912 to 1915, Clarence Birdseye spent time in Newfoundland, Canada, where he learned to ice fish with the Inuit. He discovered that the fish he caught froze instantly, and still tasted fresh when thawed out.
At the time, conventional freezing methods were done slowly, which damaged the tissue structure of the fish tissue and led to a mushy and dry product for the end customer.
Seeing the opportunity to provide fresh frozen food, Birdseye invented flash freezing and pioneered the modern-day frozen food industry. He led the charge for the entire supply chain — from frozen railroad cars to the freezers at grocery stores that would hold his products.
Founder Lesson: To build a category, you need to think bigger than just your product and instead focus on the greater ecosystem that will need to be built into order for your category to see adoption.
Tesla — the “electric car” category.
Electric vehicles are far from a new idea. The first electric cars were actually produced in the 1880s. Over the years, large automakers released electric cars but few consumers wanted to buy them. They were small, ugly, and (for lack of a better description) uncool.
That was until Tesla came along and built one of the first electric vehicles that people actually wanted to own. Elon Musk took over as CEO shortly after the company launched and has paved the way for the industry, steamrolling over critics, haters, and short-sellers.
To reach the level of success Tesla has today, Musk had to battle an industry that doesn’t take kindly to change. In many states, laws were put in place that prohibited automakers from selling directly to consumers. Feeling threatened by the new model, groups such as the Michigan Automobile Dealers Association worked tirelessly to pass legislation that would ensure the 700 dealers they represent didn’t see their business model threatened by companies like Tesla who sold directly to consumers. After years of legal battling, the state government decided it was best to actually listen to the people they represent — instead of trade associations with a crystal clear agenda— and made it legal for Tesla’s model to exist. (Full Wikipedia summary of the status of these cases across the US)
Founder Lesson: As you push your new category into the world, be prepared for war. Those who stand to be disrupted by your innovation will view you as an enemy and will work against you to neutralize you as a threat. Also, don’t be afraid to take your fight public. Here is a Q and A where Musk brings this battle with dealership associations into the light.
Apple — the “smartphone” category.
Months before Steve Jobs’ infamous keynote where the iPhone was revealed, Palm CEO Ed Colligan — head of the company that made the PalmPilot — was asked if he was worried. He said, “We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”
Today Apple dominates the smartphone market. Looks like those PC guys did know a thing or two.
Founder Lesson: First mover advantage and category creation are two different things. Don’t get confused and believe that simply being first is enough for you to dominate your new category. You can end up doing all the work in the early days and still get the industry pulled out from under you. Always be prepared
Docusign— the “digital transaction management” category.
Realizing the world was becoming more and more digitized, DocuSign capitalized on the opportunity to pioneer the ability to electronically sign documents. Today they are a publicly-traded company with a market cap of $974 million and are the market leader for digital transaction management — the category term they coined shortly after launching.
DocuSign has created extensive resources that educate potential customers on the legality of electronic signatures across different jurisdictions and use cases.
Founder Lesson: As you work to drive adoption of a new category, place major focus on identifying false perceptions that customers may have about your technology to ensure they fully understand your capabilities.
How do you create your own category?
Creating, then dominating, a category is not something that just happens.
It requires planning, thoughtfulness, and intention. It requires founders and their teams to develop an entirely new discipline as early as possible in the company’s lifecycle.
This new discipline is called Category Design.
Most founders are focused on two areas: building a great technology (product) and building a great company (sales). They believe that if enough people see their better, faster, cheaper, and cooler technology, they will win.
But the truly great founders don’t leave their market up for chance. Play Bigger outlines an incredibly simple framework that involves three core elements:
Step 1: Get clarity on the problem you are solving
The founders of Uber honed in on the problem customers wanted solved when they called a taxi. They simply needed to go from one place to another. From simplifying how they viewed the problem in the first place, they were able to build a totally new category to solve it.
New categories start with identifying a problem that no one else is talking about and no solutions currently address. It’s all about identifying a problem that people didn’t know they had or could be solved.
To identify these types of problems, you must obsess over the end customer. You need to consider their day-to-day activities, engagements, and needs, and ask, “Why do they do that?” From top to bottom, everything must be questioned and analyzed from a fresh perspective. You need to free your mind of the rules that govern the existing solutions and start with a blank slate.
One of the best ways to do this is to apply first principles thinking to the problem. Then you can work your way through each individual component of the problem, questioning each as you go through.
Step 2: Create and shape the category label.
You probably don’t have many friends who list “snurfing” as a hobby. But you probably have a few mountain friends who enjoy snowboarding. Snurfing was the original category until Jack Burton Carpenter pioneered the category of snowboarding.
An article in MIT Sloan Review explains: “A dominant category label reduces the uncertainty and confusion surrounding the meaning of a new type of product, making it clearer to customers and producers what the new product is for and how it should be used.”
Your category name needs to make it easy for people to familiarize themselves with what the category does. It also needs to be a label that others will eventually adopt. You need an ecosystem to grow around your category so it can’t be something that is too specific to your brand name.
One great way to uncover a new category name is to look for job titles. This is what Gainsight did in the early days of building the customer success management category. They saw more and more companies were hiring Customer Success Managers and used that as one of the signals to go forward with their category.
Step 3: Document and spread your vision.
In 2016, Lyft founder John Zimmer published a long-form post titled “The Third Transportation Revolution.” This piece explains in detail their vision for the future of transportation over the next ten years and beyond.
In this step, you need to create a manifesto that can be circulated internally and externally to rally people behind your vision. This content should be published under the founder’s name and should be emotional, authentic, and, most importantly, inspirational.
Whether it’s an internal employee, investor, journalist, or potential partner reading it, they should be able to feel the passion behind every single word you write.
It should outline your vision for the category and provide a glimpse into what the future will look like in the years ahead as the category takes shape.
Here are some questions that your manifesto should address:
- What injustice are you tackling?
- What milestones have you achieved so far?
- What ongoing macro-economic, consumer, and technology trends point in the direction of your vision? (Why now?)
- What has recently changed in your technology, regulatory, or competitive environments that previously made your vision impossible?
- What metaphors can you provide customers to better understand what you do?
- What will customers be able to achieve in the future that would be impossible today?
- Ten years from now, what will be the impact of this category?
Step 4: Evangelize the category.
When Marc Benioff launched Salesforce, he declared war on the idea of on-premise software. He led the charge in questioning why companies purchased software that required expensive on-site installations, long-term contracts, and an overall lack of flexibility. He evangelized the idea of cloud computing software, which paved the way for Salesforce to lead the category as it grew.
For your new category to become a success, it needs a leader and that leader needs to be you. You must be the authoritative advocate that the members of the category community look up to and respect. You must be their trusted leader.
Educate your market on why the problem that you solve should no longer exist. This requires you to play the long game and aggressively work to provide informational and inspirational content to your audience to help them understand the problem you’re trying to eradicate.
Instead of solely thinking about marketing your product, start a community of like-minded people who believe that the problem you’ve identified should not be tolerated.
Here are some of the tactics you can consider deploying:
- Write op-eds that highlight the scale of the problem.
- Create content that provides industry best practices, buyers guides, and “Industry 101” resources that explain everything someone needs to know about the category.
- Conduct original research that surveys those who experience the problem to put some hard numbers behind how big of a challenge this is.
- Write a book that covers everything there is to know about the category (Years ago I read Gainsights’s book Customer Success, which is the best example of this tactic in action).
- Launch a category-focused podcast where you interview others who are interested in the new category to provide unique perspectives.
- Create an industry association that offers certification programs and training.
- Proactively work with regulators and governments to clear the roadblocks that will prevent adoption (I followed this path when I became one of the first Bitcoin-focused lobbyists in 2014).
Your goal here must be to build thought leadership by positioning your brand as the trusted go-to expert for the new category. By being the one to educate, you will be perfectly positioned as the solution to the problem.
Finding Success in Category Creation
Creating a new category doesn’t happen overnight, and the reality is most companies don’t have the patience to see it through. They kick off the process full of excitement, then give up because they are too focused on short-term outcomes.
The world today doesn’t just need a bunch of better mouse-trap startups. It doesn’t just need products that are faster, better, and cheaper than what already exists on the market.
The world needs founders who are bold enough to reimagine the world we live in and aren’t afraid to question everything that we know. Then they need to lead their customers and the greater ecosystem through that change.
Today more than ever, the world is full of opportunities for category creators.
This is the time for founders to truly change the world.
If you are interested in category creation — I highly recommend reading these two books and diving into everything the authors have published.