By Anthony Kennada, Founding CMO at Gainsight
If you talk to enough founders and marketers who have attempted to create a category, typically they’ll all say the same thing — it’s incredible when it works, but if you can take the blue pill and avoid it, you might save yourself the headache.
I think one of the key reasons for this perspective is that there really aren’t many proven best practices for how operators can actually create categories — a problem that I wanted to help address by publishing a book on the topic.
The truth is that companies who are able to create — and then go on to dominate — new categories see exponential upside relative to their peers. According to Harvard Business Review, companies that were instrumental in creating their categories accounted for 53 percent of incremental revenue growth and 74 percent of incremental market capitalization growth. For startups creating categories, the value of dominating a market while scaling can result in operational benefits as well. It can lead to everything from greater access to funding to more resources that can help attract top talent. Naturally, this can also lead to more market share and higher valuation multiples.
Beyond any and all quantitative measures of success — financial or otherwise –, there is undoubtedly a higher calling of category creation for customers in the community and employees who are enrolled in the mission. Customers of category creators benefit from a company in the marketplace seeking to help them solve complex problems, get promoted and self-actualize in their own lives and career journeys. Employees at category creators have a unique opportunity to unleash their creativity in the workplace, participate in an incredible corporate culture and launch a movement behind a new product or service.
But make no mistake — successfully creating a category is extremely hard.
There are several factors at play here, but let’s explore six challenges of creating a category as well as some key considerations to overcome them. While this list may sound daunting (because it is), going into your journey with eyes wide open will serve you well.
- Not Everyone Will Get It Right Away
One of the primary aims of category creation is to position and evangelize a new problem that you’ve observed in the marketplace—often a problem that customers don’t even recognize they have yet. It’s hard enough to position your own company and product, let alone create a cognitive reference for an entire industry. This is the intellectual challenge marketing will wrestle with throughout the journey — balancing category marketing effort of defining (and naming) the problem, with product and demand marketing effort to position the company and product as the solution. At times, it may feel like your category is another product in and of itself.
Over the years at Gainsight, we’ve spent a lot of time (and money) to help the world understand what Customer Success actually is. Many of our programs required two parallel work streams—positioning Customer Success (the category) and then also positioning Gainsight (the company and product). A signal of success in time will be recognizing that you’re not the only one screaming your category name into a void, but rather others in the marketplace are starting to refer to it accurately as well.
- Customers Are Initially Interested in Education, Not Your Product
One of the realities you’ll have to embrace in category creation is imperative to educate the market through your various marketing channels. Once you’ve developed a good content marketing program and are able to capture the market’s attention on the “why” behind your category, those who are listening will look to you for answers on the “how,” which include a logical next set of questions, such as:
- Is CATEGORY X relevant to me?
- How can I convince my CEO that CATEGORY X is important?
- Do I need to build a team to take on a CATEGORY X program?
- What’s a sample job description that I can use to recruit talent?
- How do I prove the value of CATEGORY X on revenue?
- Etc.
This is where the bulk of your content marketing effort will be spent—defining the best practices in the category you’re creating, so that anyone seeking information on the category can quickly and easily find resources online, and more importantly, that the value delivery is attributed to your brand. Do this right, and a few things will happen: (1) your brand becomes aligned with the category you’re creating in a thought leadership position and (2) you begin to build an opt-in database of conversions from an audience listening to what you have to say.
- You’ll Need A LOT of Capital (Although There Are Workarounds)
The amount of capital required to create a broad level of awareness around a need that people don’t know they have is non-trivial. It’s no surprise that in new categories the eventual winner is the best-funded, as resources in the early days help category creators (and frankly fast followers as well) distance themselves from the competition.
Eventually all businesses—whether category creators or disruptors—will have to become more capital efficient and manage sales and marketing expenses against industry benchmarks. But especially in the early days, companies need to fight risk aversion and invest in marketing programs that will build the foundation for new industry. However, there’s a complicating factor for category creators that will challenge thinking on how to deploy capital, even in cavalier ways.
- Short-Term Planning Is Extremely Hard
Marketing attribution and sales forecasting are hard enough when your business can identify and pursue a market using BANT (Budget, Authority, Needs, and Timeline) as a qualification framework. However, when you’re creating a category, you can pretty much count on throwing BANT out the window—or at least BAT. Here’s why:
- Budget. For new categories, it’s common that your buyer has never procured software (or other purpose-built products) to solve this problem before and will need to find the dollars from elsewhere in the budget.
- Authority. In many cases, your buyer is either not empowered to make purchasing decisions, or otherwise needs to build a business case up the org chart in order to do a deal.
- Timeline. Buying a product is only one part of category creation as prospects are still wrapping their heads around the problem, defining their strategy, and building their team to take the charter.
So without a proven attribution or sales qualification framework to benchmark against, how do you justify investments in category marketing?
- Executives and Investors Need to Buy In or You Will Fail
Without any question, category creation starts at the top—you need both an executive team and set of investors who are patient, have bought into the mission, and are long-term greedy. The challenges I’m establishing in this post are non-trivial, and require decision making and strategic planning at the CEO and board level—without it, category marketing programs will not be funded, or almost certainly abandoned if without quick results.
Sales quarters can be bumpy, CAC ratios out of whack in the early innings, but building something amazing requires patience, courage, and conviction. Category and brand marketing fundamentally drives growth—arguably in a much more sustainable way than traditional methods. Ultimately, the ability to attribute every marketing activity to a funnel metric is critical to proving the ROI of category marketing efforts and getting budget approval to run more plays.
Down-funnel metrics such as sales forecasting get more predictive in time as your category matures—developing a common language and point of view as a revenue team is important to keep executives aligned on the mission, and the CFO supportive of adding fuel in the form of budget dollars to the fire that you’re sparking.
- Understanding the Competition Is Confusing
While one of the signals of category creation is no identified incumbent in the market, there are often small companies that either compete directly or compete at the fringes that will eventually adopt your category positioning once traction is made. However, in new markets, it’s really not about the competition, but rather all about the market itself. The true competition for category creators, especially in the early days, is creating enough inertia to will the market into existence—and being ignorant enough to not be distracted by what the competition is doing.
While it may seem counterintuitive, competition is actually a critical component to the success of new markets—otherwise inviting the criticism of whether or not it’s a real category at all. How you choose to engage your competition, however, is a calculated decision that each company should make itself.
You may not necessarily see each other in every deal, but you are in a very real sense competing for thought leadership. Customers and prospects are building affinity with the different vendors in the marketplace through content and evangelism efforts, whether they’re paying customers yet or not.
While these challenges are certainly daunting, remember the rewards that await companies who are able to successfully navigate through them and go on to create new markets. There are many examples of brands that have pulled this off — Gainsight with Customer Success, HubSpot with Inbound Marketing, Salesforce with Cloud Computing — just to name a few.
If you want an exclusive look into their playbooks (and several others), pick up a copy of Category Creation: How to Build a Brand that Customers, Employees, and Investors Will Love, available anywhere books are sold on October 15th.
