Category design is a way of thinking through and developing a strategy for creating a new market segment and dominating it over time.
It’s called “category design” because the intent is to actively design the new market on your terms, so you are always going to be at a significant advantage over any competitors that come into the space.
In most markets of any kind, one company wins most of the share and economics, followed by a distant number two and a lot of inconsequential players. This dynamic is much more pronounced in digital markets, which are close to winner-take-all. The intent of category design is to make sure your company is that winner.
Most companies just try to be better than competitors. But that means they’re playing someone else’s game by someone else’s rules – fighting for market share. In today’s winner-take-all digital economy, the company that defines and develops a new and different category dominates the category’s economics. You can name great companies that have done this: Amazon, Facebook, VMware, Airbnb, Apple. They all started as different. They all believed in something no one else could yet see.
As stated in Play Bigger, category leaders tend to take 76% of a category's economics. We've done the analysis for you and have automated the tracking of the Category Design Index Fund. Summary below, but the full study and details of the fund can be found here.
The concept was first introduced by the 2016 book Play Bigger, co-authored by CDA partner Kevin Maney. The book has sold 100,000 copies worldwide. In the years since, the book’s co-authors have worked with hundreds of companies on category design, constantly learning and adding to the thinking. Countless venture capitalists, entrepreneurs, chief marketing officers and agency executives have embraced and practiced category design.
Some of Kevin’s new thinking since the book was published include a deeper dive into the work of the late Paul Geroski, an economist who studied the evolution of market categories. You can read about it here. Kevin has also brought the concept of the “adjacent possible” into CDA’s work. You can read about that here.
Category design as described in Play Bigger is rooted in the science of cognitive biases. As author Daniel Kahneman described in his book Thinking Fast and Slow, our decisions are heavily influenced by more than 50 cognitive biases based on beliefs and emotions. Facts mean less than biases. One cognitive bias, for instance, is the Choice Supportive bias – we tend to feel like something is the best just because we chose it.
Also, our brains naturally organize things into categories. We tend to think, for instance, “I want an electric guitar.” Then we think about brands and details. If one brand already dominates that category, it gets our attention first.
Put all that together, and the job of a category designer is to establish a category in people’s brains, and create a bias toward your product in that category – because once a bias gets established, it’s hard to shake.
How can you go about doing that? It’s way more than marketing or branding. Category design is a whole-company strategy that guides product design, informs the culture, and shapes the company’s message to the world. Think of it as a whole. Defining the category can shape a product’s features or purpose. It can shape the kind of company you build. At the same time, the product and company have an impact on what kind of category you design. They work together.
Different wins fans, not just customers. It embeds in the biases in our brains and won’t let go. Different sticks. It outmaneuvers existing products and services by starting a new conversation. And new conversations catch the interest of analysts and media, stir chatter on social media, and get passed along in workplaces and bars.
Different lures the most imaginative talent. It creates a mission, motivating and aligning employees, partners, and community.
Good people love a good mission.
Category design starts with discovery. We suggest beginning by answering three key questions – which are much harder to answer than you might at first think.
Typically, a category is defined either by a problem you can solve in a new and unexpected way, or by a technology that solves a problem people didn’t even know they had. When Steve Jobs introduced the iPad, he called it a new category of product that sat between the iPhone and laptop. In the new world of digital media, he said, we needed a new device with a big screen that we could use while lounging on a couch. Before that, people didn’t know they needed a product in that space. But once Jobs presented the category, the market got it – and believed Apple had the product that solved this new problem.
Can you name the category in a way that helps people immediately see that it’s different and not just better? Can you put your arms around this category and define it? A category is not a brand -- it’s a bucket you put your brand into. Examples of categories we all know: streaming movies, smartphones, on-demand transportation, minivans, energy drinks.
Importantly, you are looking to develop a category that does not yet exist. Some VCs talk about it as a “zero-billion dollar market.” It’s a market that only a visionary leader can see. It’s worth nothing now, but the visionary sees how it will be worth billions tomorrow. It takes courage to believe in a zero-billion dollar market – and it’s a challenge to get investors and employees and the market to believe in it, too. But that’s also part of the beauty of a zero-billion dollar market: it usually contains no competitors.
Are you chasing a zero-billion dollar market, or are you chasing a zero-million dollar market? Can the company address the size of the category it’s after?
We often tell companies that this is like buying a suit for a growing boy: you want a suit that fits pretty well today, but has room to grow into. The good category designers understand that if they succeed, the suit will soon start to seem too tight – and then it’s time to design a larger-size suit.
Defining a suit that’s too big can lead to trouble. It can mean making promises to the market that can’t be kept, giving a newcomer to the category an opening to dethrone you. Defining a suit that’s too small, of course, limits what the company can eventually achieve.
At CDA, we help a leadership team think through those questions and get alignment around the answers. How do we then bring the category strategy to life?
We start by working with you to write a point of view about the category. The POV is about the category, not the company or the product. The POV is a story that will help the market move from the old way of thinking to your way of thinking. The POV also becomes the company’s North Star. It’s a concise way to make sure all employees, partners, suppliers and contractors align around the mission and direction of the company.
The next step is to go to market and introduce the category. Many companies do this with “lightning strikes” designed to grab the market’s attention and get people to believe that your company is doing something important. These might be stand-alone events, a hijack of an existing industry conference, or a blow-out product launch.
Build and evangelize a great category, design the category to your advantage, and stay true to your North Star over time, and your company will be on a path to dominating a significant category for years.