Every technology company with the ambition to be a global leader needs to be thinking about how from day one they will dominate a category their scale.
By their very nature, most tech businesses are solving a problem customers may not they know they have, or developing a solution the customer doesn’t know they need.
So it’s incumbent on them to think about the problem they are worth solving and then to consider what solving that problem at scale would actually look like. How would it be defined? What would it be called? During the early start up phase this may seem premature, but think of it like this. Assume you are building a technology problem that is truly worth solving on a global basis, someone else could come along – thinking and playing bigger – and end up owning that category by dint of the scale of their ambition and the excellence of their execution.
What is a category?
Sometimes we see companies solving problems but it’s hard to define the category, but one way to think about this is to consider the category as the container for the problem.
“Here in California, when winter comes around people want to head up to the mountains to ski and one of the most common questions is what’s the best vehicle to use and the answer is invariably an SUV – a sports utility vehicle – to get you up the hills and through the inclement weather,” says Dave Peterson, author of Play Bigger, the definitive guide to category thinking.
“The answer, SUV, is not a brand name, but rather the category that all the brands sit under.
When is it too soon to start thinking about your category?
At Notion, we think about the companies in terms of three life stages – start up, grow up and scale up and the analogy for start up is “are you solving a problem worth solving” and we think of the problem as the proxy for the category.
“We go back to the core premise every entrepreneur starts with”, says Dave, “that hunch or insight. Ann Miura Ko at Floodgate calls this “That magic that either creates a technology insight or a market insight that ultimately leads to a category”.
“The starting point is this itch the entrepreneur has that there is a massive problem and if only enough people would see it, we could create a massive business.”
But sometimes it’s hard for people to grasp, because at first it’s hard to see.
“I go back to when we first published our book in 2016 we were struggling to get people to take category design seriously as it is hard to measure and manage and track milestones against. In reality it’s a state of mind that goes something like this – in order for my product to have relevance in the world it needs a category that enough people believe is important to them.”
How do categories form?
They form in much the same way as the Notion think: start up, grow up, scale up.
The premise is that categories form much the same as companies – start up (are you solving a problem worth solving), grow up (can you build a business to solve that problem), scale up (can you get really big, really fast).
For categories there is a design phase, a develop phase and a dominate phase and the journey typically takes 7-10 years to fully form.
So when should you start thinking about your category? Much the same time you are starting the company.
“The problem that you are solving with your product is the proxy for the category”, continues Dave. “The root of the category is based in the problem you are solving. Just like the code is the baseline for the product and people are the baseline for your company. “
“And if you have a problem that you are going to solve with that product and the people who can build the company then you have the basis of the category. And that category starts – that journey starts – the same time you start coding that product and hiring those people.”
And at a certain point unless you are explicit with most people about what a category, and take steps to develop it there is a decent chance that people won’t understand it.
“Start ups and categories move together and we call this the magic triangle – company, category and product.”“At the start up phase, we may not be manifesting the category externally but we are thinking about it internally and thinking about how we are going to work through those phases.
But the extent to which we externalise the category will change over time.”
And in every case the problem is the proxy for the category.
Is Category Thinking for the the first mover only?
There are many examples in which being the first mover is not the be all and end all.
Dave continues, “First mover advantage is something of a myth. Maybe back in the day when it cost millions of dollars to set up a company and enter a market. But now that is not the case. And been proven time and again.”
A couple of examples? Yahoo opened the door for search and Google closed it. Tribe and Friendster open the door for social networks, Facebook closed it with a global network.”
If founders are totally product centric they might think their category is bound by the features they offer, but there are other tech visionaries who while product focused, are fact in bound by how many people have the problem and how well they can execute to reach that audience.
“People who can envisage the global meta view of the problem and think if I can get to them will they accept me as the solution? These are the people who can start a category OR come in to a category that is emerging, see the bigger picture, and execute on their vision to win”
Winner takes all
Technology businesses are inherently scalable and category leaders when they reach dominance consume a huge amount of the value.
Dave elaborates: “We did the research and looked at every category king from the last 20 years, it verified that 76% of the total market cap when to one player. There is no 2nd place. Winner takes all.”
What sets these founders and companies apart is the ability to think and play bigger than everyone else in the market.
“We talk about the gleam these founders have in the eye and the violent paranoia they experience that someone else will come in, take everything they’ve built, capitalise on it and fly right by. And it takes a certain type of strength to believe the journey is never over.”
For some they category design, develop and dominate journey never seems to be over.
“Take Amazon as an example, they continue to identify and execute on new problems based on the flywheel for success they have built. If you do not keep your eye on the far horizon and thinking – like Amazon – how you can extend the extent of your category – then you will fall off the wave.”
Central to Dave’s thinking on category design, and the focus on longevity of true category kings is the principle of the category curve.
“Every time you think you have ridden the curve and you are harvesting it the rewards, a new category will be on its way. And every new category will create a new set of problems which will create a new category and so on.”
“Think about the evolution of the phone. Plugged into your wall. Then it became mobile in the home. Then it was connected in your car. And then mobile and now entirely ubiquitous.”
“Many of the leaders in the mobile world – Nokia for example – dominated an earlier category and rode the wave. And it wasn’t so long ago that none of us could imagine Nokia failing, damn I loved those phones! They rode the wave, but as the curve started to decline they failed to jump the curve, and if you miss the next curve you die!”
“Amazon, Apple, Alibaba and a handful of other technology companies are now creating their own curves. They create the category, dominate it and jump to the next curve and dominate that too. The game will never be over if you are prepared to keep playing and that is a perspective that people need to grasp, because there does not have to be an end game.”
But what sets the best apart is not just the paranoia and the bigger vision, it is also the self belief and ambition.
Today, geographic location should be no obstacle to creating and owning owning a category and building a category king from anywhere in the world.
“Now you can kick-start a company for anywhere in the world. If you have an idea and a problem, then the only boundaries you have is how many people have that problem and how well you execute. It’s a bit of an excuse to think just because you are not in a tech hub such as silicon valley you are not qualified or capable of building a category king. Those days are over.”
What is the mindset you need to have to believe the next Google could come out of the UK or Europe?
Dave sums it up neatly: “It really is just a belief, if you believe it is possible to build a global category leading company – literally anywhere in the world – you can make it happen. The constraints of the past do not exist today.“
“If you have that burning mindset to solve a problem people do not know they have yet, all the resources, all the thinking, are at your disposal. If the problem is big enough and you execute exceptionally well then the best people will come to you to help you build your company and the product ideas will fly off the shelf and the best customers will want your solutions. And the best VCs will want to invest in you. It’s just a different mentality.”