This past week, The Transformation Principles, a book I co-authored with General Catalyst CEO Hemant Taneja, was published. It is getting attention from journalists and business leaders who see the book’s ideas as an important way of thinking about company building and capitalism in this chaotic moment of AI, geo-political turmoil and deep divides.

It also aligns with the concept of strategic category design, and deepens reasons for practicing it.

The book details nine principles that have guided Hemant and General Catalyst over the past decade as the firm has invested in and helped build category-defining companies including Stripe, Livongo, Airbnb and Anduril. 

Many of the principles are not what you might expect from a VC firm. The overarching framework for the principles is captured in principle number eight: “The choice between positive impact and returns is false.” Or, to flip that around, we (the authors) believe that the best companies – the ones that endure and pile up the best returns over time – are companies that have a positive impact on society. We believe it’s time to move past a century of “profit-only capitalism,” and into a new era of “inclusive capitalism.”

I won’t go into all nine of the principles here. But I want to highlight a few that seem important to the practice of strategic category design.

The first principle in the book is: “The business must have a soul.”

A sense of soul infuses a company when a founder or founding team deeply cares about solving a difficult and important problem. And that commitment almost always arises out of a connection to the problem from past experience. 

Over and over again, in our decade of working with companies on category design, the most successful at building and winning a category are usually those with this sense of soul. Lauren Dunford, who has been defining the category of FactoryOps at Guidewheel, had an operations background and started the company because she cared deeply about helping small manufacturers operate as efficiently and sustainably as the manufacturing giants that could afford to invest in the best machinery and software. When a founding team feels that kind of soul, the company is more likely to do whatever it takes to solve that problem for the long term.

Principle number three from the book: “Creating the future beats improving the past.”

That one has a direct correlation to strategic category design. Improving the past means you are entering someone else’s already-developed category and trying to be a little better or cheaper or faster. That’s never going to be a home run company. It might grab a few points of market share, but won’t set the agenda or wow customers. 

Category designers focus on creating a new future. They want to build something different from what came before – a new category of product or service. Those are the companies we know and admire – companies we’ve worked with like Mozee, which is defining a new concept called “modular agile transit,” and Mesa, which is creating a new kind of system to help make home ownership more affordable. Among more famous companies that created a new future, think of General Catalyst’s Airbnb and Stripe, or for that matter OpenAI with its category-defining release of ChatGPT in 2022. They all built something that didn’t exist before. 

The book’s fifth principle: “Serendipity must become intentional.”

Many companies that want to create a new category start with an “a-ha” moment. The founder or team of founders suddenly sees how to solve a problem in a new way. Sometimes they almost stumble on it. Uber’s founders were famously trying to hail a cab in Paris in the rain, looked at their new iPhones (this was soon after iPhones debuted), and realized they could build a better way to get a car ride. 

That serendipity can be the initial spark for a new category. But what matters more is winning the category’s dominant design in the long run. That’s when enduring, over-the-moon returns kick in. And the only way to do that is to take that serendipity and become extremely intentional about building, defining, and ultimately winning the category.

If you want a deeper dive into those principles and the rest of them, please pick up the book.

And for what it’s worth, Hemant and General Catalyst are out to create a new category of investing and company building – not short-term venture capital as it’s been practiced, but an entity that has the mechanisms for both investing in founders and then building important companies over decades. 

The Transformation Principles is one way GC is defining that category and setting its rules. 

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Would you like to discuss strategic category design with the co-author? Book office hours here.