Win Your Category

0:00Jason:At CLA, we're in your corner and on it. We coach tax strategies and Little League First Base. We help you adopt AI data tools, and we adopt rescues named Buddy. We walk your factory floor and jog the local 5K, though sometimes we walk that too. Wherever you're coming from, we're right there with you. Wherever you're going, we'll get you there. CLA, CPAs, consultants, and advisors. Learn more at claconnect.com slash with you. Today we helped a Latte for Sam coffee shop get an insurance quote simply and easily and made sure a floral delivery van was able to make someone's day. We're the Hartford, with decades of experience insuring millions of unique small businesses.

0:46When it comes to your small business insurance Thank you. one size absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash smallbusiness. We call this book the category creation formula because we actually, there is something of a formula. It's a great discussion driver. Context plus missing plus innovation equals a new category. Context constantly changes and sometimes it changes a lot. The more that happens, the more new problems it creates that didn't exist before or creates new ways to solve a problem that's been around for a long time.

1:23Jason:Running a business means solving problems. I tell you how the smartest entrepreneurs do it. Hi, I'm Jason Pfeiffer, Editor-in-Chief of Entrepreneur Magazine, and this is Problem Solvers.

1:38Jason:It is one thing to compete. You know, competing is good. Competition is good. You create something in a marketplace, and that marketplace is crowded, and then you have to figure out the rules of that marketplace. Do you price yourself competitively with everyone else? Are you a more premium product? Do you go more expensive? Do you go a little under? Do you have to play by their rules? How do you cut against their rules? And so on. But there's another way to do this. If you can see the opportunity that others don't, well, then you get to set the rules because you're not competing in a category.

2:09Jason:You are creating the category. You are defining the category. How do you recognize that opportunity? That is the thing that we are talking about today because I am with a guy who thinks deeply about it. His name is Kevin Manning. He helped introduce category design in a best-selling book called Play Bigger. And now in a new book, The Category Creation Formula, He and a co-author share the secrets that they have learned over the past decade, plus new concepts and tools that help companies see and frame new categories. Their advisory firm has worked on strategic category design projects with more than 50 companies and guided workshops for hundreds more at incubators and VC portfolio gatherings.

2:45Jason:Kevin, thank you so much for being here. Welcome to Problem Solvers. Thanks, Jason. Great intro. You nailed it. Thank you. Okay, good. Because, you know, I'm not the category defining expert you are, but I have heard this conversation come up in so many different ways about how if you can be the category definer, then you not, it's not just that you have first mover advantage, but you get to shape perception of the product or the category and it becomes a game of everybody else competing against you. But why don't you step back and set up this idea for those who are less familiar with it? Sure.

3:25Well, you know, so here we are on the problem of Salesforce podcast and a problem. There's one of two problems that a business has or a company or a founder, for that matter, investors who have a portfolio of companies. One is you're in somebody else's category. And as you just described really well, you enter somebody else's category that they've already set the rules and the expectations and the pricing and everything else. And you are basically going to have to follow them. You're going they're going to win most of the market share of that category. You're going to be able to say, like, OK, our thing goes like 15 percent faster or whatever it is.

4:03And we'll scrape a little 5 percent out of that. That could be a really good business, but it's not what really ambitious founders tend to want to do. Right.

4:11Jason:And let's just use a random category here just so that we have something to talk about, which is, let's say, toothpaste. If I started a new toothpaste company, then every consumer already is buying toothpaste. So the way that I would win is to just try to pull some small percentage of people away from Colgate or something. And that can be a good business, but you're always competing against Colgate. Right, right. And Colgate has set the expectations. We call it the rules. of what is going to come in this tube. It's going to have a minty flavor. You put it on a toothbrush, all that stuff. You start selling toothpaste in a screw top jar, people are going to look at you funny.

4:53Right.

4:53Jason:Because they're already familiar with the design from Colgate. I mean, I don't know if Colgate actually invented this design, but let's just run with it. And therefore, the expectations of what the consumer sees as toothpaste is driven by and defined by another Right, right. And actually, so, and I don't want to belabor this, but just to take it to, you know, a more modern technology example. Yeah. So you think about Uber. So Uber, and you can go on the Internet, you can see the first pitch deck that Uber ever used to pitch investors. And, you know, this was the early days of the smartphone. Nobody had seen this kind of application before.

5:33And there's probably a hundred different ways you could have done a car ride hailing app. But Uber chose this particular way with a map on it. You can see where the black cars are. You put your credit card in, you know, so that you don't have to pay, you know, in the ride, all these other little factors. And essentially, Uber ended up, by doing that, setting the rules for what ride-hailing apps are going to look like. And if you today go anywhere in the world and open even a local ride-hailing app in Singapore or Southeast Asia or something like that, it's going to look like Uber's because Uber set those expectations of what it's going to be, which then permanently, I mean, as long as this is a thing, right, puts Uber in the driver's seat of what that category is going to be like.

6:18That's a wonderful position to be in as a company, right, to be the one that is setting those rules in that way because then everybody else has to catch you. Right. And then the question is, how do you do it?

6:29Jason:Yeah, well, how do you do it, right, because it sounds like the way to do this is to do the hardest thing in business, which is to come up with a completely new idea that nobody has seen before. Is that the barrier? Well, there's so there's two barriers, actually. And so first of all, yes, like creating something entirely new. But the good news about that is that so we call this book the category creation formula because we actually there is something of a formula. It's a great discussion driver that, you know, we think every company should put up on a whiteboard and just talk about from time to time.

7:05So the formula goes like this. It's context plus missing plus innovation equals a new category. And so the context is everything that's changing and happening around your desired audience. And the good news is, is that context constantly changes. And sometimes it changes a lot. Right now, it's changing a lot, right? Between AI, geopolitics, you know, there's so much going on in the world that's shaking up the way we live and work. The more that happens, the more new problems it creates that didn't exist before or creates new ways to solve a problem that's been around for a long time.

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9:09Jason:And it doesn't need to be taught. Because Slackbot isn't just another AI. It's AI that knows your work as well as you do. Visit slack.com forward slash meet Slackbot to learn more. And the good news is that as the more the context is changing, the more those problems and solutions and possible solutions are emerging that didn't exist before. So that's the missing part of the equation. If you can see that context and then start to understand what's missing now that people actually really need, it becomes very easy to see that new innovation that you can create to solve for that missing in this new context.

9:47That often puts you in the best position over time, but not always. Jason, you probably remember 20 years ago or whatever, there was always this concept, first mover advantage in technology. Which turned out to be not really true, right? I mean, the first mover often sometimes did have an advantage, but not always, right? And that's because economists have studied the way categories work over time. And what they came to realize is that if a category really should exist, if it really matters, then somebody is going to create it. And a lot of others are going to say, that's really smart. We should do that, too.

10:31they're going to come into this category usually with a bunch of different like sort of versions of maybe different designs works a little bit differently different form factor whatever it is right and you see this ramp up of like in fact if it doesn't happen you've probably created a category that nobody cares about so so if you see that happen okay the category is real now the important thing becomes um so as all these companies pile in with these different designs Most of the buying public, whether it's B2B or B2C, it doesn't matter, is uncomfortable with that. Right. Which one am I going to buy?

11:07How does this one, if I get this one, is it going to disappear in a year? It's a really cool idea, but I'm not sure what to trust here. And that's kind of what the early adopters play around, you know, but the rest of us kind of sit on the sidelines and wait. But then what happens is some years down the road is this thing called the dominant design gets chosen. because we want to know there's kind of one way this works. Take smartphones, for instance, right? Remember all the different, there was Nokias, there was Blackberries, there was Form Factors, all these.

11:38Jason:Sure, yeah, they looked totally different. I was going to ask you for an example of this, but that's a really nice one. So, sure, the early smartphones had completely different designs, and then the iPhone came along, and it essentially created the standard for what at least this generation of smartphone looks like, And then every other smartphone started to look like that. That's exactly right. And because, because look, I mean, we don't want to learn one phone's operating system and then they have to figure out another one three years later and, you know, all these things, right? So yes, when, so when the iPhone came along, it basically set the dominant design, the expectations for what a smartphone is going to be like.

12:17And you either got on board or you disappeared. Because that's what most of the buyers want is that, that dominant design, not necessarily one company doing it, but a dominant design.

12:28Jason:Right. And the head of BlackBerry, if I'm remembering this correctly, very famously said that nobody wants to type directly on the screen, which is the reason that they held on to the tactile keyboard, which turned out to be the mistake of the sensor. Exactly. Right. And by the way, I didn't want to type on the screen either. I like the little keyboard, but, you know. So the two things that are important for any company wants to be this category creator and leader. One, yes, it's great to be the category creator. That can be really important because it does give you at least a first advantage, but it doesn't matter unless you went into the dominant design.

13:07Jason:That's really, really interesting. If I can just step back and just make sure that I've got there, because that is a very interesting secondary lock, you might say, because when we first think about category creation, you think about, well, who has the best idea? Who has bringing something totally fresh to the market? I like your way of thinking about it, where you first look at the context, what technology has changed, what needs have changed, what are people able to do now that they weren't able to do before? And then therefore, what is the unmet need that is existing inside of this new world that has just been created?

13:41Jason:And you might think if you have the best idea and you take it to market, then you can win. But actually, that's not true, because if you have a good idea, you're going to get competition immediately. And so the real competition here is to lock in the dominant design, which is a hidden concept inside of all of this. Is that right? That is exactly right. What happens too is, so, you know, our brains all work on cognitive biases, right? We like to think like these logical thinkers, but we actually have all these biases that kick into place. It tends to be the case that when someone wins that dominant design, they kind of lock in that bias as, you know, okay, they know what they're doing, right?

14:19Apple locked in the bias for smartphones that, you know, and Android came along, you know, a year later and basically copied the design because it was the dominant design. And this is what often happens in healthy categories, right? You get this one company that sets that dominant design, cements the bias in people's minds that they're the ones that are the leaders and the go-to, right? There's almost always a number two that takes a lot of market share, too, but way less than the first one. By the way, even though there might be more Android phones in the world, Apple sucks up all the profits from the smartphone market.

14:57They have the pricing power, which is another great thing.

15:00Jason:Right, right. Right. And I know here I'm also thinking there's Uber and Lyft, right, which are your two main, I mean, there are others, but that's basically all I think of. What are just some other, before you move on, what are some other examples of who won the dominant design? So we could just be thinking about the different ways this appears. Yeah, I mean, so let's take a step out of technology and go back quite a number of years to the 1980s. And Chrysler had its back to the wall, right, and was actually going bankrupt. and there was no way Chrysler was going to convince the world that we could introduce some sedan that's going to be better than Toyotas or something at that point in time.

15:37But what they did is they latched onto something called the minivan and it was a brand new class of car. It didn't exist before. And in fact, that whole kind of category formula thing is Chrysler recognized at the time that the baby boomers were moving to the suburbs, having multiple kids, driving them to soccer practices and all these things. and the only real choices for a big family were either like this condo van, big monster thing that drove like a truck or a station wagon that was just a long car and concocted this new class of car that they used the category of minivan and they branded it something else, which is also important because categories like something that's in the air, like microwave oven or smartphone or whatever, it shouldn't be a brand.

16:29And it established this thing that every family, when they got the second kid, had a conversation of, should we get a minivan, right? Important new category. And 50 years later, Chrysler still has something of 50 % market share in minivans, even though these big players like Honda and Toyota and whatever have come into the market. There's a similar example with hard seltzers. because White Claw, this little company out of Vancouver, even though these huge companies like Anheuser-Busch have come in with versions of it, they haven't been able to knock White Claw out of the number one position because, again, that sort of bias sticks in.

17:12And so, I mean, continuing to press the advantage, I guess, is a big part of it and present yourself as the ones who are like, We are the ones that are in charge of this. I mean, it's kind of an attitude thing, right? We're the ones that are in charge of this market. We're going to tell you where it goes and what flavors get introduced. And don't let somebody else overtake that.

17:34Jason:Yeah. I'd like to back up for a minute, Kevin, and revisit the original formula that you laid out, which was the context and the unmet need. and I'd love to hear your guidance for founders on how to assess the context and the unmet need. My realization in working with so many companies over the years is that they don't have this conversation. This is not something the leadership team sits around in a meeting and says, let's have this conversation about the context around our targets. And that's where we start when we work with a company. So we will get a leadership team in a room and say, we're going to spend all day, basically, talking about, well, this formula, we have some other thinking tools and things like that, of course, but it's basically, how do we get to exactly the way you described?

18:27And so I'll give you an example. We worked with, I don't know, just before COVID, I think it was, we worked with LinkedIn's division called Sales Solutions. And it's a building. Link in like the car? Oh, LinkedIn, LinkedIn.

18:42Jason:Oh, LinkedIn. LinkedIn. Okay, got it. Not LinkedIn. No, LinkedIn. Yeah, okay. LinkedIn. Right, sure. So they have a division called Sales Solutions, about a billion-dollar division that's a product specifically tailored towards sales professionals. And when we worked with them, they were 10 years old. And they originally went to market with, like, you know, we have this data and information and you can find people and all that stuff, right? What they realized, the reason that they wanted to work with us on something was because, first of all, there was a lot of these competitors nipping at their heels and coming with Zoom info and these guys.

19:16But what they realized was that in 10 years, the sales profession had changed dramatically. And salespeople were mostly really unhappy. There was all these tools they were trying to toggle between these different ones, and they still couldn't really get what they needed to really drive, because the way buyers bought it changed so much in 10 years, too. So the first thing we did was we had this really deep dive conversation just about the sales profession. What's happening to it? What are people miserable about? What would make their job so much easier? And you kind of eventually came to this conclusion that the only way to really sell in a B2B environment anymore is to have a really deep relationship with the person you're selling to, which is hard to establish without being able to use data and information and track where people have gone and establish relationships and all this stuff.

20:12And so if deep relationships was the only way to be effectively selling, then we needed to create a – they literally came to this conclusion – we need to create a product based on our data because we have this data that can make this happen that was really geared towards finding and tracking and creating deep relationships. And we ended up calling the category, in fact, we called it deep sales.

20:40And the first thing that the group did, actually, after we finished, was they went away and redid the product for six months so that it met this need that they discovered in this session. And that went to market with it. And it totally energized what had been a lagging division and went inside of LinkedIn and turned them from like the slowest growing division to the fastest growing in a couple of years.

21:05Jason:You know what I really love about that anecdote? And I'll just say this so that you can react to it. What I really love about it is how the category that was created is not some widely known one. You called it deep sales. This is different from the minivan or the smartphone, right? Which are these very visible categories. I can keep thinking of them, right? We talked about Uber. We could have thrown Airbnb into this. There are all these things that are extremely visible that feel like distinct, easily recognizable things. In a way, what you are identifying is you're calling it a category and you're going to treat it like a category and you're going to take it to market like a category.

21:47Jason:But I would bet that for the people who are selling it, what it also feels like is a distinct insight. It's almost like what we're taking to market here is, hey, your needs have changed. We have developed something that is specific to you right now that does something that nobody else does. And that doesn't, it's not a minivan, right? It's not a literal new object rolling down the street. But what it is, is a way to present yourself as doing something very distinct to your competitors, and that's customized for the audience that you want to serve. And there's a nuance here to whether or not this feels like a new category exactly, or is it just a really smart product with good marketing?