Campbell's Soup & How To Design A Category Breakthrough In The Roaring 2020s
The way it is now, is the way it is, because someone else replaced the way it was.
Arrrrr! š“āā ļø Welcome to the free edition of Category Pirates. Every month, we publish radically different ideas to help you create, design, and dominate your own categoryāin business and in life. Thank you for reading, and of course, forward this āmini-bookā to any friends you think need to hop aboard the Pirate ship.
Dear Friend, Subscriber, and fellow Category Pirate,
100 years ago, The Campbell's Soup Company had a breakthrough.
For 30 years, the business sold little else besides produce, canned tomatoes, vegetables, jellies, condiments, minced meats, and of course, soups. Business was good, but there was nothing āradically differentā about these products. Canning had been widely accepted as a method for sealing food since the early 1800s, and even when pasteurization was invented in 1864, fresh foods were difficult products to scale. Soup, for example, while cheap to make (its primary ingredient being water), was still heavy and expensive to ship.
Until, in 1895, a chemist within the company named John T. Dorrance came up with a radically different idea.
If Campbellās halved the water in each can, the business could produce and ship exponentially more soup (since the excess water was no longer needed)! Simultaneously, the company could drop the price of a can of soup from 30 cents to 10 cents, expanding both their distribution and lowering the barrier to entry for new customers in a way no other food production company had been able to.
As a result, Dorrance and Campbellās invented ācondensed soup.āĀ
New category.
This insight fundamentally transformed the business. Today, the company (with a $15 billion dollar market cap) is referred to as The Campbell Soup Company, with Campbellās condensed tomato, cream of mushroom, and chicken noodle soups remaining some of the most popular shelf-stable foods in grocery stores all across the United States.
If Campbellās was a food startup today, marketers and branding experts, other founders, executives, and even venture capitalists would likely attribute the companyās success to a wide variety of things. āCampbellās successfully achieved product-market fit,ā they might say. Or, āCampbellās found white space in the market and stood out from the competition,ā while pointing at Andy Warholās remarkable designs and contributions to the companyās branding (which came 60 years after the invention of condensed soup).Ā
But are any of those reasons truly why Campbellās was so successful? Was Campbellās differentiating factor really the design of its cans?Ā
We would argue, no.Ā
What made Campbellās successful was John T. Dorranceās ability to move the world from the way it was, to the way he wanted it to beāa world where soup became inexpensive to ship, still easy to prepare, and just as flavorful for the customer. Campbellās didnāt lean on a new flavor (tomato soup already existed). Campbellās didnāt spin up a new marketing tagline (āMmm Mmm Goodā is hardly a breakthrough). And Campbellās certainly didnāt beat out the competition by running 2-cents-off promotions.Ā
So, what happened?Ā
How did a company known for canned tomatoes, vegetables, jellies, condiments, minced meats, and watery soups, become the undisputed champion of the entire shelf-stable aisle of every grocery store in the United States of America?
And more importantly, if you are an entrepreneur with an idea, an executive running a company, or an investor betting on the future, how can you do what Campbellās did more than 100 years ago, today?Ā
How can you move the world from the way it is, to the way you want it to be?
You canāt research a breakthrough.Ā
In our last letter, Did The Roaring 2020s Just Start?, we made the case for why we could be Ā entering into a period of unprecedented economic growth.Ā
We also explained why right now is no time to be working on the incremental.
The question is howāhow do you set out to create a ādifferentā future?
Most people (including some of the smartest, highly compensated executives in the corporate world, or even the most celebrated high-flying founders in Silicon Valley), donāt know how to think about designing a category breakthrough, especially when theyāve already found something that āworks.āĀ
Instead, they venture down the road of what we like to call āBetter, Faster, Smarter, Cheaper.ā They invest years of runway, gob-loads of money, and the collective brain power of their entire organization on figuring out how they can get 1% more customers in their market to buy their āproven productā instead of a competitorās. Their entire existence is rooted in comparison to someone elseās.Ā
Said differently, they would rather compete over the past instead of challenging themselves to create the future.
Remember how Google+ was going to unseat Facebook in the social networking category?Ā
Or how Red Bull was going to kick Cokeās tin can by launching Red Bull Simply Cola?Ā
Or how in the ā80s, Colgate (the toothpaste brand) launched Colgate Lasagna?
Each of these are perfect examples of how you canāt just take your brand, stroll up into someone elseās category, and expect for customers to care. And like the Campbellās story elucidates, if you want to experience an exponential outcome, if you want to become a category king and reap two-thirds of the categoryās economics as a reward, then you canāt compete your way to victory. (Not in any traditional sense of the word competition). You canāt play someone elseās game. You canāt research the market for ācondensed soupā before it has been invented.Ā
You have to create it. And then you have to frame it, name it, and claim it!
Which means you canāt number-crunch and research your way to a breakthrough.
You have to take an educated leap.
Or, as our friend Mike Maples, Co-Founder of Floodgate Ventures likes to put it: you have to stand in the future and ābackcastā your way there.
The VC Game: An Exercise In Category Creation
So, letās assume the Roaring 2020s have begun.
Corporate America is sitting on its largest stockpile of cash ever.
Consumer spending and travel are on the rise. Household income is relatively stable.Ā
And as crazy as this sounds, Americans gained $12 trillion in new wealth during 2020.
While theĀ coronavirus pandemic inflicted massive pain and suffering, it also transformed our idea of what is āpossibleā. The number of Bannister Breakthroughs that have happened is stunning.Ā
The stigma around working from home is gone.Ā
The idea that we canāt produce a meaningful drug in less than 7-10 years has been disproven.Ā
Bitcoin is now considered a reliable store of value.Ā
These are all Bannister Breakthroughs that have fundamentally changed the way we live, work, relate to one another, and see the world.Ā
So, how can you leverage these opportunities to your advantage?
We have a recommendation.
Back in āthe old daysā of the dot-com boom (when Pirate Christopher was just a young buccaneer chasing booty in his britches), he would walk companies through what he called āThe VC Game.ā
Imagine for a moment youāve just been fired from your companyāwhether it be a global enterprise or a garage startup. No one is hiring. You have a kid on the way. And your only option is to create a new and different future for yourself.
The good news is: you have all the assets of your former employer with none of the liabilities. You donāt have to worry about payroll or customer retention. You donāt have to protect existing market share, profits, etc. Your mission is to create a new category or redesign the existing category such that you put your old employer out of business and you win. (Ahah, a true pirate!Cleave that old Grog Blossom to the brisket!)Ā
To facilitate a productive and powerful brainstorming session, work through these questions in order:
āWhat does our business look like today? Whatās happening in the world, and how might we expect the future to play out?ā
āWhat business models do we believe will be most successful ten or twenty years from now?ā
āWhat products will the world want based on all the new tailwinds in todayās economy?ā
āWhat new category could we create that would inherently leave the old category to die?ā
āWhat new and different future can we invest in that would fundamentally change the trajectory of our category and business?ā
āWhat different future could you create if your āold employerāsā category didnāt exist?ā (For example: Elon is thinking beyond the broadband category by creating a new global network powered by satellites.)Ā Ā
āWhat are the 3-5 future scenarios that incorporate all of the above?ā (We recommend using the Category Design Scorecard here.)
Scenario 1 = Incremental changes to the current category
Scenario 2 = Demand shift leading to new products, but same business model
Scenario 3 = Demand AND business model breakthroughs
Scenario 4 = Demand AND business model AND data flywheel breakthroughs, where demand can be anticipated well in advance of it materializing
Scenario 5 = Turbo-charged scenario 4 with such gravitational pull that we re-invent not only our category but several adjacent categories around us
āWhat must be true to believe in each scenario?ā
NOTE: This is not āwhat is trueā or āwhat will be true.ā This is a bar that is too high for anyone. Instead ask, āWhat else would you need to believe for this scenario to come to fruition.ā Itās a lower bar, and also a signal you can spot earlierāmuch like feeling an ache in your bones before it rains a day later.Ā
Weāve done these workshops in stealth for years. Now we are thinking of offering this āVC Gameā as a workshop-style live cohort, so if you are interested, please respond to this letter in your inbox with āPIRATES AHOY!ā and weāll add you to our launch list.
The VC Game Example: The āWork From Homeā Category
Now, before we begin this next section, let us explain whatās about to happen and why weāre asking you to continue reading.Ā
Playing āThe VC Gameā is how you form a category thesisāwhich inevitably leads to an investment thesis. Before any professional investor or partner at a VC firm makes an investment, these are the sorts of questions they are asking (and rigorously stress-testing) before writing up their rationale for why the firm should make an investment.Ā
If you want to see how this works at the highest level, read the investment memo Roelof Botha wrote to Sequoiaās investment committee in 2005 encouraging them to make a seed investment in a budding startup called YouTube. In it you will find more research and information on the emerging category of āuser-generated video contentā and tangentially relevant categories like āonline photo sharing sitesā and āvideo entertainment websitesā than you will the product itself.Ā
Thatās because the $1 million Sequoia chose to invest wasnāt just a bet on YouTube as a company, team, or product.
It was a bet on their leadership position in an exciting emerging categoryāin the context of all the surrounding headwinds and tailwinds of their broader industry and the economy at large.
So, strap on your scuba gear, matey. Weāre going deep.
*Jumps Overboard*
To give you a sense of how this exercise works, the three of us pirates hopped on a Zoom and went through this process ourselves. āIf we were out of a job today, what new category could we create such that our previous employer would be put out of business?ā
One tailwind we are particularly interested in is this new trend of Working From Home (WFH).
Hereās how we worked through the questions:
āWhat does our business look like today? Whatās happening in the world, and how might we expect the future to play out?ā
Right now, there are two different realities unfolding.
WFH becoming the new way of living life: Twitter and Square have said they will allow employees to work from home forever. FastCompany calls this āa permanent shift,ā and so many companies have already decided to remain 100% remote or move to āremote-flexibleā that a directory has been created to track just the remote policies of companies all over the world.Ā
WFH reverting back to the stigmatized trend it was before the pandemic: Netflix has called working from home āa pure negative.ā And Google CEO, Sundar Pichai, has said, āhaving a sense of community is super important when you have to solve hard problems and create something new so we donāt see that changing,ā explaining why Google is working toward bringing employees back to the office.
So, what do we know?
Opposite sides are forming. Bets are being made. And you can imagine the different types of realities that may play out depending on which companies choose which sides.Ā
For example, what does the world look like if a company like Salesforce decides to sell off their buildings and move 100% remote forever? What does Apple do with its groundbreaking $4 billion UFO-style HQ? Similarly, what does the world look like if Twitter and Square decide a year from now, āYou know what? We were wrongāeverybody back in the office.āĀ
Either the Netflixs and Googles of the world are wrong, and they lose the war for talent because engineers would rather live in a 3 bedroom house with a pool in the mountains of Wyoming than a 1 bedroom apartment in Sunnyvale (which we wrote about in a previous letter). Or Twitter, Square, and the onslaught of other companies opting for remote-first workforces lose the war on productivity and come to the conclusion that distributed teams arenāt as effective as they thought theyād be.
Our perspective here is that executives like Mr. Pichai are using a Native Analog lens to deal with a Native Digital tailwind. For anyone over the age of 30, the idea of running a company as large as Google 100% remote seems ludicrous. But to anyone under the age of 30, it kind of seems like itās only a matter of time. He might very well be making it harder for Google to keep the hottest talent and continue to attract new Native Digital workers.
The reason we believe that is because the work you are reading right now was created 100% remotely. The three of us pirates live in three different places. We have only been together in the Analog World a few times. And yet, we consider ourselves brothers. We started collaborating long before we had ever āmetā (a legacy word for the 1st time you see someone in the Analog World). And Google Docs is one of the primary ways we are able to work together.
As a result, we speculate one of the greatest digital companies in the world might be making a very large analog mistake.
Onwards...
āWhat business models do we believe will be most successful ten or twenty years from now?ā
We arenāt real estate experts, by any means, but we are category expertsāand the category of āhousingā is in massive redesign right now.
For example, home ownership for Millennials is becoming less and less likely by the day. According to a report published by Apartment List, ā74% [Millennials] said affordability was the main reason.ā Second, Millennials do not see home ownership as part of their ideal lifestyle. Renting, flexibility, and avoiding the burdens of paying for home repairs are bigger benefits. The result here is an explosion in housing categories that provide more freedomālike the redesign of the āVan Lifeā category that exploded in 2020.
In addition, both unemployment rates and home prices rose in 2020 and the first quarter of 2021. The āAmerican Dreamā of owning a home and settling down is slowly (or, at this point, quickly) being eroded away. According to the National Association of Realtors, āEvery metro area tracked by the NAR through the fourth quarter of 2020 witnessed home prices grow from a year ago.āĀ
The takeaway?
Thereās a strong headwind happening right now (that will likely continue) where a substantial amount of people will want to rent, not buy.
Letās keep going...
āWhat products will the world want based on all the new tailwinds in todayās economy?ā
In a world where renting is more desirable than buying, there are 2 types of consumers:
āSuperconsumersā: Pirate Eddie coined this term with his legendary book, Superconsumers, which explains that the most dedicated 10% of customers in a category can drive anywhere between 30% and 70% of sales (and are usually willing to spend considerably more than the average consumer). A āsuperconsumerā in housing is someone who really loves the idea of owning a home, and so is willing to pay the premium to achieve that outcome.
Regular consumers: Everyone else who isnāt obsessed with home ownership wonāt bother. They arenāt the āsupers.ā They donāt really care whether they buy or rentāthey just want to live somewhere nice, in a desirable neighborhood, and in many cases over-rotate on whichever decision gives them the most flexibility.
As we dream-and-scheme about potential category futures in WFH, we are starting to see some business opportunities hereā¦
If the tailwind of Working From Home is going to remain (and more importantly, accelerate) over the next decade, we can expect the gap between these two types of consumers to widen even further. If youāre a āsuperconsumer,ā you will be the one who buys a home and youāll pay 2x, 3x, maybe even 5x in order to have the one you want. These home āsupersā are also likely older, and therefore Native Analog.Ā
If youāre not a āsuper,ā then youāll look for the best rental property in your price range and optimize for convenience, flexibility, and so on. Further, these non-home owners who donāt have the desire to become homeowners will likely drive a new category of lifestyle, meaning new āsupersā in this emerging category of living will expand. They are likely to be Native Digitals.
The result?
āSupersā who have to pay 2-10x more to have the home they want will likely start thinking of ways to monetize their asset(s) to make up for the premium they had to pay to acquire them.
And regular consumers will likely start thinking of ways to rent other peopleās assets in order to receive the same benefits but without taking on any of the associated cost or lifestyle anchors of ownership.
Still with usā¦?
āWhat new category could we create that would inherently leave the old category to die?ā
Work From Home + Native Digitals + Rent, Donāt Buy = Tons Of New Category Opportunities
When we combine all this information together, we can imagine a world where some people have incredibly valuable home offices (āsuperconsumersā who buy and over-invest in their WFH setups), and others who maybe canāt or choose not to invest in fully equipped home offices (not worth doing in a rental property, donāt want to buy all that equipment when theyāre optimizing for a renterās lifestyle, etc.).
We can also then imagine a world where āsuperconsumersā who have to pay 2-10x more for their homes, and who choose to over-invest in their home offices, want to subsidize their purchases by renting out their home offices to other people in their neighborhood. These customers are the Native Digital renters who want to enjoy the same benefits but without incurring the overhead costs and making the investments themselves.
For example, Pirate Eddie is retrofitting his home office as we speak to be a modern home TV studio so he doesnāt have to fly to New York every time CNBC wants to hear his hot take on Tesla. And Pirate Christopher hosts Lochhead On Marketing and Follow Your Different in a state of the art podcast studio built above his garage.
If Pirate Eddie and Pirate Christopher are both home owners and WFH āsuperconsumers,ā why couldnāt they rent their home studios to other professionals, executives, even Millennial and Gen-Z podcasters in their areas to subsidize their costs? More importantly, what might we call (now letās Frame, Name, and Claim the category) this type of person? Are there enough of these types of people where we might be able to create a marketplace for this new type of customer?
Could this category be the āAirBNB meets WeWorkā of the home office?
(For additional context: this is already happening with mansions in LA and Instagram, TikTok, and YouTube influencers.)
Now weāre cookinā...
āWhat new and different future can we invest in that would fundamentally change the trajectory of our new category and business?ā
If we believe all of the above to be true, then it would be in our best interest to begin investing in this new and different future as soon as possible.
In 2008, the number of people who believed in a future where living rooms and spare couches were rented out to make a few extra bucks was essentially zero. Nobody thought Airbnb was a good idea. And yet, the reason Sequoia gave Airbnb a $585,000 seed investment was because one of the startupās founders, Brian Chesky, was working in San Francisco but couldnāt actually afford to live in the city. As a result, he needed to find other ways to support his income. (Sure sounds familiar to todayās tailwinds).Ā
Sequoia figured, āIf you have this problem, chances are, a lot of other people do too.ā Brian had to get Sequoia to take a big mental leap to write that check. They had to believe Brian could create a different futureābecause AirBNB did not āfitā into any existing market category. And like many breakthrough startups, they were addressing a zero billion dollar market.
Side note: most people think designing and investing in zero billion dollar categories is insane.Ā
What they would rather build is something that addresses big existing markets, with big existing demand. Sounds logical right? Most CEOs and investors think this strategy āde-risksā their new venture. In reality, attacking an existing market category with a āBetter, Faster, Smarter, Cheaperā strategy is the riskiest thing you can do. Colgate Lasagna, anyone?
This category thinking is so counterintuitive, so against what most of us get taught, it explains why most people never become category designers.Ā
It also explains how and why category designers are able to kick most competition-drunk companies to the curb while creating a different future. Blockbuster, anyone?
Investing in a mechanism to rent home offices (which we could say is a āniche downā of the larger āhome rentalā category that has been created and designed over the past decade) makes a lot of sense. If more and more people are going to start working from home, and this next generation of home buyers isnāt going to be able to afford a home and/or want to invest in a super valuable home office, then we can assume there may be interest in wanting to rent other peopleās home office setups for remote events, special interviews, presentations, TV & podcast recordings, and so on.
So, is any of this a good idea? No clue.
But we do know that if we were entrepreneurs or VCs, ādifferent future categoriesā are always worthy of exploration and consideration. Remember, every breakthrough is a stupid ideaāuntil itās not.Ā
There is a fine line between stupid and clever.
And category designers know that in order to design a different future, being 100% right or 100% wrong is better than being 1% right and still 99% wrong.
More importantly, we wanted to show you the thinking not to share a new category idea (and āgive you the answerā), but to give you a practical, detailed example of how you can play āThe VC Gameā with a new category idea you might be thinking about in the context of your business.
You canāt research a breakthrough. But you can game it out.
When a āmarketā of people doesnāt currently exist, thatās great news.
That means you have the opportunity to create the category, define the rules, educate customers on the āfrom-toā (the problems with the status quo and the benefits of this new and radically different solution), and create demand as a result.
This is what makes it a leap.
Companies, entrepreneurs, and investors who pay attention to tailwinds, proactively facilitate these types of unconstrained creative discussions, and are willing to strategize and build what doesnāt exist yet are the ones who escape the rat race of competition and enter the promised land of creation.Ā
Because rememberā¦
The way it is now, is the way it is, because someone else replaced the way it was.
Now is no time to be working on the incremental.
Arrrrrrr,
Category Pirates š“āā ļø
This letter was all about how to create categories that take advantage of current and future tailwinds. But what if you are caught in a headwind? What do you do if the macroeconomic climate and/or your industry is faced with an uphill battle. What then? We have a framework for how you can āniche downā and turn a headwind into your own personal tailwind.
P.S. - If you found this mini-book valuable, we encourage you to check out some of our other free favorites:
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Very well written - I kept wanting to stop reading, but it was so fascinating that I kept consuming - like a bottomless bucket of salty, buttery popcorn. Thank you!
I know that in your speculations you aren't proclaiming certainty of the future, so I don't critique how you unraveled the thread of "millennial homeownership." I only comment to add that there are other rabbit holes that the data may be taking us toward. The same is true for the "in person vs WFH" argument. For example, the decline in household formation among millennials may have been a result of their coming of age during the great recession - delaying their opportunities to mature, "settle," or "own" various things. This is exacerbated by many of their desires to own being thwarted by affordability (which you addressed as the key concern) - mostly in the large metros. Many savvy millennials aren't necessarily foregoing owning (see some of the recent studies about millennial US buyers as a percentage of the whole and you'll see that ownership is still on their minds) - they are just solving the desires for flexibility and affordability with other new categories (enter the aforementioned home rental market - of which I have been profiting nicely for 9 years). Imagine combining the home rental market with the Van market and you have flexibility, ownership, and affordability (even likely positive cashflow). All this to say that many of the data points don't always deliver the information of what people want - and that understanding - like the Brian Chesky/Sequoia anecdote is more nuanced.
I guess this is inherently the non-obvious creative fun of category design.
And regardless of the various rabbit holes of speculation, these exercises lead to the true objective: new market opportunities in where we live, how we interact, and who we pay for these amenities and services. AND THAT, is phenomenally exciting.
Iāve been consuming your content all day and have a question. One principle of being a category pirate is having an abundance mindset and healing yourself of CDS. Thereās also a rejection of the idea that creating a new category should be about disruption. It may disrupt, but thatās not the goal. Lastly, you mentioned, āWhat different future would crush āold employerāsā category?ā
Is it more consistent to ask, āWhat different future could you create if your āold employerāsā category didnāt exist?ā or is there a better reason for taking the aggressive tone that the article suggests?