Should you create a new category?
Many people in the startup ecosystem feel that a company needs to create its own category in order to succeed and create maximum value for its shareholders. It’s a piece of accepted wisdom that’s been floating around a long time, popularized by various experts promoting ideas like “first mover advantage”, “category king” strategy, and “playing bigger”. The idea is supported with numerous examples - some going far back, like Coca-Cola, and others, more recently, like Uber. It’s been repeated so often that lots of people accept it without much thought. It just seems like it makes sense.
Like most things in business, it’s not that simple. While some category creators and first movers become wildly successful, the majority simply don’t - in fact, most fail. The odds of success are actually better for category disruptors and subcategory creators, and those aren’t easy things either.
We won’t go into a detailed case about why category creation and first-mover advantage don’t really increase the odds of the average startup’s success. That’s been done well already - here are 3 links for anyone interested:
The Half-Truth of the First-Mover Advantage - HBR
Debunking the First-Mover Advantage Myth - Ryan Holmes, Founder/CEO Hootsuite
The Last Mover Advantage - Campaign Live UK
Also, positioning is just the first step in a long journey toward leadership in any category, whether you create it, disrupt it, or form a subcategory within it. And while it’s critical to get positioning right, that part’s easier than the rest of the journey. Leadership takes hard, hard work and excellence across the board in innovation, technology development, fundraising, branding, marketing, selling, customer service, business development, hiring, hyper-growth management, and all the other aspects of business execution that define a true category champion. Oh, and luck also usually plays a decent-sized role at key points along the way.
People also regularly misunderstand what’s meant by creating a new category. You can do plenty of good without trying to be something no one’s ever thought of before, or trying to convince people you’re something you’re not. It’s always very helpful to be a part of something people already understand, so that you can highlight your differences against that backdrop.
But let’s set aside the nuances of what we mean by “category” for now and focus on the first 3 issues startups should really be thinking about when trying to define a positioning:
What is the serious problem your company solves for customers? It’s way better to have a problem looking for a solution, than to be a technology looking for a problem. And customers care a lot more about their own problems, than digging in to the details about your company and technology
Who else is trying to solve it, and how do they fall short? You need to find a chink in the leader’s armor. See the LinkedIn story below
And most critically, how is your company and solution different from existing players? This is big. Your company must be different, or it will struggle
Different is what cuts through the noise, not “better”
James Hannon and I have done positioning, messaging, PR and advertising for a minute now. More than 80 of the companies we’ve consulted with have been acquired or went public. We can unequivocally state that being a bit better doesn’t command the attention of customers in a crowded marketplace or from the journalists and other industry watchers who pass judgement on companies, their offerings and their positionings. Being very different is what gets attention. It goes without saying that it also helps to be better - but being different is the only thing that has a chance of putting your first 15 minutes of fame on the clock.
Two examples from our own experience
Bebo was a social network founded in 2005. It was one of 5 or so in 2006, when we began working with Bebo’s founders Michael and Xochi Birch, and their new CEO Joanna Shields. It was not the category creator, and was among the newest and smallest in social networking. While they weren’t first or biggest, they had one new and different thing - their video tech was advanced for its time, so a lot of the content on the site was video-based. So we agreed to position Bebo as the very first “video-first” social network. We all felt Bebo’s video capabilities could be explosively monetized for advertising, and would be attractive to the right acquirer, at a premium, owing to the difference. Some smart PR moves were made around the video-first positioning—defining a video-first future with analysts, previewing Bebo’s video-first experience and technology to all the right insiders, launching lonelygirl15, one of the first Web video narrative series and providing weekly PR updates, and hosting glamorous social networking summits with Bebo’s ecosystem of cool partners at top tech venues in San Francisco—with VIP passes for analysts, journalists and other influencers.
The company was acquired in 2008 for $850 million in cash by AOL. Footnote: the AOL executives appointed to run the company were not able to execute on the video-first and ad monetization vision, and the site folded in 2013. It was repurchased by the Birches for $1 million. YouTube emerged as the video-only leader, and was acquired by Google. 2nd footnote: top LinkedIn executives were among the first angel investors in YouTube. See next story.
A little bit later, we worked on LinkedIn’s positioning vs. Facebook with Reid Hoffman, Keith Rabois, Dan Nye, colleagues from Atomic PR, and senior marketing executives at Linkedin. LinkedIn was not a first mover either. They were 100% seen by the market, analysts and journalists as a small, niche social network at the time. Around the same time, Facebook was beginning to message about its upcoming capabilities for business people. LinkedIn invested in sharpening its differentiation as a social network for business people only— “LinkedIn for your business life, Facebook for your social life”. Our strategy was to pit Facebook’s reputation for youthfulness, friends, fun and hijinks against its own effort to recruit business people - whose critical career interests might not be best served by the fun-loving, personal-privacy-ambivalent young folks at Facebook. Our firm at the time, Atomic PR, punctuated the differentiation with a marketing and PR push into major metro areas across the country designed to sign new members from mainstream, non-tech careers to LinkedIn, and a series of broadcast television pitches featuring video clips of true stories about successful people losing jobs or interviews after employers and recruiters reviewed their Facebook posts and party photos. We also enlisted a Silicon Valley image consultant to give advice on how to repair Facebook damage to your career. The strategy, positioning and program was very effective and Facebook didn’t capture the market for business networking in the way they thought they would. LinkedIn went on to do all of the many other things category leaders need to do well to succeed, and the rest is history.
Was Bebo a social network? Yes. Was LinkedIn a social network? Yes. The market and the analysts 100% thought so too—at the time. Did both companies start new categories? Sort of. LinkedIn actually made a new category stick - business networking - and they are clearly the leader now. But at the time, both started by emphasizing they were different flavors of social networking.
We think differentiation is always what matters most at first. Then, it becomes 100% about execution. Differentiation is always a cause, strong execution is always next—and category creation is always an effect.
Thanks for reading. We hope you found this helpful. Please get in touch with any comments, questions or additional thoughts.