This is the second of five articles that make up The Newcomer’s Guide to Category Design.
In part one, we shared why categories play such an important role in the software buying process. We also discussed how category design is a business strategy you can use to break free of competition over market share.
But what we haven’t told you yet is that category design is probably not the right strategy for your company.
That what we’ll cover in this piece. As you’ll soon see, category design requires both the right circumstances and the right capabilities. Here’s how to assess those for your own company.
If you’re interested in reading the entire series in PDF or ePub format, you can access the entire category design guide for free at Flag and Frontier.
Having the right circumstances for category design is all about having a new angle on solving a problem. Remember, categories are ways of grouping similar products together – products that aim to solve the same problem.
There are two ways to think about this: you can solve a new problem that has recently emerged (one that there are no solutions to). Or you can bring a new approach to solving an old problem, an approach so unique that comparisons with old solutions don’t make much sense. Here’s an example of each.
Marketers have dealt with inefficient and ineffective tactics since the beginning of time. We’ve wasted plenty of money on ads delivered to the wrong audience, or on capturing leads that had no intention of buying. There have been plenty of solutions to help us solve this, too – tools for retargeting, attribution, finding the right audiences, intent data, and so on. Terminus, though, provided a novel approach, called account-based marketing (ABM) that attempts to solve this problem in an entirely new way.
If the old demand generation approach meant capturing a bunch of leads at the top of the funnel and working to convert them, account-based marketing represents the reversal. It involves focusing on the best accounts first, then developing campaigns based on getting their attention alone. By developing software to help with this, and by heavily evangelizing ABM on the side, Terminus developed a new category around this new solution.
Not more than a decade ago, the term customer success wasn’t on anyone’s radar. It wasn’t part of a job title, the name of a department, or an established discipline. But as SaaS companies recognized that churn and account expansion represented the potential for major revenue loss or gain, respectively, they started to pay more attention to proactively serving customers after the sale. With that, the customer success discipline was born – an entirely different approach than the more reactive customer support role.
With this development, though, a new problem emerged: customer success teams didn’t have software built for their unique role. Help desk software that customer support teams used just wasn’t cut out for it. Enter Gainsight. By creating customer success software, they were able to solve a new problem that had emerged. Gainsight wasn’t the only company to develop customer success software, but they were better than anyone else at evangelizing customer success as a new idea. As we’ll later see, that’s a big part of category design.
There’s one distinction worth mentioning with this idea of solving a new problem. Sometimes, this problem is one your buyers are already aware of. But it’s just as likely that buyers may not even be aware that they have a problem. As a category designer, it may be your job to show them.
These examples have one thing in common. Neither Terminus’ account-based marketing software or Gainsight’s customer success software would have fared very well if they were positioned in existing categories. That shouldn’t be a surprise though. These new categories were aimed at a new type of buyer and defined success in a new way. And each performed different functions that existing products didn’t address.
For those reasons, trying to compare ABM tools to demand-gen tools, or customer success software to help desk software would be like comparing apples and oranges – an unfair comparison that would have only led to confusion. To avoid such a situation, both Terminus and Gainsight set up new categories where they could define the terms of competition in their favor.
These examples should make one thing clear. If you’re offering is truly different from other solutions out there, then you’re probably in a situation where you need to create a category in order to avoid confusing comparisons with products that solve other problems.
But if you’ve simply made an incremental improvement to something that already exists – a new feature, lower cost, or faster performance – that usually doesn’t warrant a new category. That’s just a better version of something that already exists.
There’s nothing wrong with creating something better. But trying to develop a new category when you haven’t actually built something different will only hurt you by confusing potential buyers. You’re better off competing for a unique position in an existing category, one that buyers are already aware of and have demand for.
While those examples from Terminus and Gainsight are pretty clear cut, assessing this for yourself isn’t always so easy. Here are some questions you can ask yourself to find out if your solution is better or different:
If you answered yes to most of these questions, it’s likely that you’re in a situation where it’s more appropriate to build a new category instead of competing for market share in an existing one. But having the right circumstances isn’t enough. Your team has to have the right capabilities if it’s going to be successful at category design. For more on this, check out these nine acceptance criteria you can use for defining the category problem.
Just because you’re in a situation where category design could make sense, does that mean you’re in a position to pull it off? Not necessarily. Executing category design is hard, and it takes a certain kind of company to pull it off. Here are some points to help you assess whether you’re ready.
Category design is a long-term play. It’s not a one-time campaign or something you can focus on for a quarter or two. “People are skeptical. When you create a category, it is hard to get people to pay you for your solution at first,” said Lindsay Tjepkema. “Getting them to change the way they are thinking is hard work – especially when you are the first.” It will probably take a few years for an emerging category to turn into a legitimate market. If you’re expecting your category evangelization efforts to pay off sooner than that, you’re setting yourself up for failure.
There will always be cynics and skeptics. And when you try to convince them about the need for your new category, they won’t hesitate to tell you all the reasons why you’re wrong. Sticking to your guns in the face of such people takes courage and conviction. Not everyone will be a detractor, but the minority that exists will make sure they’re heard. Especially if you start to show signs of success.
Category design doesn’t come cheap – and I’m not just referring to your marketing budget. Not only does category design require you to develop a new message and evangelize it over a period of many years. You also have to spend energy keeping your product roadmap on track and convincing investors, employees, and partners to wait for the payoff.
All of that takes resources – money yes, but also in terms of time, attention, and energy. This is true whether you’re designing a category as a startup or as an established enterprise. “Category design requires sufficient runway, too,” said Gina Hortatsos, CMO at Logic Gate, where she’s designing a category to stand out from the process automation space. “It takes time and a tolerance for mistakes and frequent pivots.”
By “on board,” I don’t mean “everyone nodding their heads because the CEO said so”. Your entire executive team has to be excited about pursuing the strategy and commit to executing category design together. That’s because category design is a business strategy that requires effort and input from every department. If the process is something delegated to a single department, then the effort will fall short of its potential.
Your chance at category design might look great on paper, but if your team doesn’t have the right attitude, nothing else will matter. You will have to move quickly. You will have to coordinate across departments, making strategic decisions without succumbing to groupthink. You will have to be able to rally each other when things get tough. And most of all, you need a culture that’s willing to try new things and take risks.
According to Kevin Maney, “If you have investors who are cautious and want to only go after easily-defined markets in a me-too way, you have the wrong investors.” While category design can greatly improve your chances of success, it also demands patience as you build a new market from scratch. If your investors are just looking for a quick win, they may not be ready for the journey.
Remember, your category also needs to be lucrative enough to satisfy your ambitions – especially if you’re VC-funded. Gong is a great example of a company that ran into this restriction. While they were the clear leaders of the Conversation Intelligence category, they found that space to be too restrictive. Ultimately they decided to step outside of it.
Udi Ledorgor, the company’s CMO states, “In Gong's case, we walked away from the legacy Conversation Intelligence category to create the revenue intelligence category, which helped us get the attention of senior sales leaders, who won't typically take a call with a solution provider they perceive as being tactical, which is one of the problems plaguing the Conversation Intelligence category.”
While some of the examples I’ve shared involve the entire company focusing on a new category, that doesn’t always have to be the case. In a more mature company, you can design a category for a new product, even when one of your legacy cash cows sits squarely in an existing one.
Consider Everbridge, a publicly-traded SaaS company that built its business in the “Mass Notification” category. When the company set its sights on something more ambitious, called critical event management, that didn’t mean it had to give up its presence in an existing category. Instead, category design was something additive that helped the company expand what was possible.
“We knew we would always be able to solve the problems that are inherent within the mass notification category, but we’re interested in solving bigger and broader problems,” Jeff Benanto, a marketing director at Everbridge (EVBG), said in this interview about the company’s category design process.
We wanted to learn more about the problems our customers have that are more extensive and pervasive than the challenges that can be solved by Mass Notification. And by listening to our customers, we realized there was a bigger market opportunity to provide solutions to meet these needs. A more consolidated way to keep people safe and systems running. And that’s how we landed on critical event management…If done right, it’s going to have huge returns on investment for our business.”
Jeff and his team were clearly on to something and the strategy proved to be right. Since the company started working on Critical Event Management back in 2016, the stock is up several-fold and the company now has a market cap over $5 billion.
Will you be prepared to lead this category once it’s established? Or will you be merely preparing the way for a competitor to take the crown once the category is built? You need to answer this before you begin.
Consider the Salesforce example from earlier. Salesforce didn’t just establish the cloud-based software category, they prepared to build, grow, and lead the category from day one. While they started as a CRM company, it wasn’t long before they introduced other types of applications to the cloud. Through continuous innovation and heavy marketing, Salesforce was able to maintain its position as the “category king” even as the category grew and other cloud-based software companies emerged.
Consider what Bill Macaitis, Salesforce’s former SVP of Marketing said: “At Salesforce we always believed our brand was the sum of every single interaction a customer had with us. This meant we were constantly evolving and re-inventing how we could delight our customers at every stage. There was no endpoint, just a long journey of customer-centric touchpoints." Hear more about Salesforce and it’s category design efforts in this interview with Bill.
But if you look at a company like Skype, things didn’t turn out the same way. Back in 2006, Skype introduced a way for multiple people to conduct a video conferencing call – all without having to purchase expensive hardware or software. Skype already had hundreds of millions of users, and they could have become the category king of video conferencing. But today that honor belongs to Zoom. Skype simply did not invest enough in innovation or marketing to earn the crown.
Finally, ask yourself whether you would be pursuing category design for the right reasons. Consider this idea from Eddie Yoon, author of Superconsumers8 and growth strategist to category creators in the Fortune 100 and leading VC-backed upstarts. According to Eddie, aspiring category designers come in two types: mercenaries and missionaries.
“Mercenaries are Machiavellian. They see category creation as a means to an end, to help them raise capital, build awareness, or improve their valuation. The consumer and end-user don't really matter to them. My research shows that this tends to fail in the long run.
Missionaries, though, are more likely to sustain their success because they view category creation as a never-ending quest. They can't stop dreaming about a future that is captivating, beautiful, and radically different – one that's richly abundant and where everyone benefits. They can't shut up about it or stop working on it, as they are themselves the “super consumer” who is the ultimate muse and north star for the new category. Ultimately, missionaries get that category creation is not a short-term play or a mere marketing strategy.”
Remember, category design isn’t for everyone.
According to Udi Ledergor, CMO at Gong, “To ensure your category will grow to a lucrative size, you'll want to make sure that you're solving a painful problem your target buyers really want to solve; your target buyers have the budget and authority to pay for your solution; and there are enough target buyers so you don't run out of customers too soon. In addition, it goes almost without saying, you actually need to build and promote the right product to solve your buyers' pain.”
Tip:For more on how Udi thinks about category design, listen to this interview.
There’s a chance you’ve read the above and realize that category design doesn’t make sense for you. If so, good. You’ve just saved yourself a tremendous amount of time and money by avoiding a project that was unlikely to work out in the first place.
But if you’ve gotten this far, my guess is that you’re experiencing a combination of excitement and trepidation. Excitement, because I’ve just shown you a path forward that can help you avoid the “red ocean” of an existing category and build a new market for yourself. Trepidation, because I’ve also shown you that this path isn’t a cakewalk.
But at the end of the day, if you find yourself solving a new problem – a problem that your market doesn’t know about and one that isn’t defined by an existing category – then you don’t really have a choice. To succeed in any meaningful way, you do need to follow category design. The next section will show you what that process entails.
If your company isn’t offering something meaningfully different to the world, then category design isn’t appropriate. If that’s the case, you are betting off carving out a niche in an existing category. If you do offer something different, your team will need the right attitude, resources, and people if you’re going to succeed. Category designers need to be prepared to take and defend the leadership position in their new category.
John Rougeux is VP of Marketing Strategy at BombBomb, where he’s leading the company’s efforts to build the Human-Centered Communication software category. He’s the owner of Flag and Frontier, a marketing consultancy and resource hub dedicated to helping executives pursue category design. He also hosts the #categorycreation series on the B2B Growth Show.
This is the first of five articles that make up The Newcomer’s Guide to Category Design.
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