The Big Category Lie: The 8 Reasons (Everyone Says) Category Creation Is A Bad Idea

"Category Design is too expensive."

Dear Friend, Subscriber, and Category Pirate, 

Most people believe Category Design is who-ha, malarkey, and/or B.S.

(To put it lightly.)

And you can’t blame them, really. There are over 50,000 marketing books, 30,000 business strategy books, and 20,000 entrepreneurship books on Amazon. Most of them say similar things, and most of these teachings share the same contextual scaffolding: that the path to success is about competing in an existing market category; that your goal as an entrepreneur, executive, investor, or middle-market manager is to build a better product, build a better brand, or execute sales better than the competition. 

In these books, there is a lot of talk about innovation. This is an expensive word for “compete on product quality.” Emblematic of this thinking is “The Innovator’s Dilemma” by Clayton Christensen. The book is about how “unexpected competitors rise and take over the market” by “disrupting” the category with a more innovative product. And how, by the time the new “disruptive product” becomes interesting to an incumbent's customers, it is too late for the incumbent to react to the new product—which means the new disrupting product competitor “wins.” The whole book is about how you out-compete for category share with a more innovative (better) product.

This is gospel. 

The bummer is, business doesn’t really work this way. New products do not take over old markets. Instead, new categories displace old categories. And the two are not the same. But the competitor/product lens is so deeply ingrained in the average business person’s brain, it would never occur to them to think about or challenge this premise—nevermind reject it.

Which is why everyone on LinkedIn shouts, “The best product always wins!” 

And those types of posts (just like the 100,000 business books on Amazon) receive the most engagement.

It’s easier to agree with a commonly held belief than to question it and consider something different.

Competition exists in the context of a comparison. 

When you see the business world (or even the world in general) through a competition/product lens, the unintended consequence is that you begin your thinking journey with your first step rooted in “responding to the market.” Your entire mindset is about “how we are going to beat them.” Or, “How we are going to capitalize on this (market trend).” 

What it’s not about is the new and different future WE are creating. 

Said differently: If you don’t want competition, then stop comparing yourself to the competition.

More importantly, don’t start with “the way it is today.” Start with the way it should be tomorrow, the way you wish it already was, the new and different reality you are impatiently living in and working tirelessly to backcast to the present moment.

This is what Category Design is all about.

Unfortunately, a lot of people in the world believe Category Design doesn’t work.

And they have a whole bunch of reasons as to why.

They believe it’s a giant waste of money. That you can’t “create” demand—you can only fight for it. That everything that could have been invented has already been invented, and every new product is just a “better” version of the thing that came before it. That there is no such thing as Category King economics (where the entrepreneur/business that creates the category captures 76% of the upside as a result). 

These people are not Pirates.

As we wrote about in The Big Brand Lie and The Big Product Lie, those who believe Category Design “doesn’t work” are almost always the same folks who believe “the best brand always wins” and “the best product sells itself.” They can’t even entertain Category Design thinking (or allow themselves to give it a shot) because that would require them to let go of their existing beliefs about business and entrepreneurship. Instead, they root their thinking in “fitting” their product into an existing market, fighting for existing demand, and aspiring to be different while simultaneously hedging their bet: different enough to try to be “better,” but not different enough to be radically different.

But as Hernando Cortez famously said in 1519, in order to show the world you are truly committed to the cause, you have to “burn the boats.”

The 8 Reasons Category Design Doesn’t Work

The more we write about Category Design, the more we encounter the same 8 reasons why people believe Category Design doesn’t work:

• “You can’t create demand out of thin air.”

• “It’s too expensive.”

• “It’s not about categories. It’s about the best product, the best marketing, or the best price.”

• “People don’t like change.”

• “It is smarter strategy to wait to capitalize on macro trends.”

• “24% of a big market can still be a huge number—why reinvent the wheel?”

• “We can’t explain this to our stakeholders.”

• “Product positioning is a superior/less risky strategy.”

However, if you say Category Design doesn’t work, what you’re really saying is “Category Design doesn’t work for me.”

But you don’t actually believe it doesn’t work.

And your credit card statement is all the proof you need:

• Do you have a Netflix subscription?

• How about Amazon Prime?

• Do you use Uber?

• How often do you eat at Chipotle?

The vast majority of anyone’s spending, and the majority of where people spend their time, is with Category Creators. (What’s the likelihood that your 5 closest friends also have Netflix subscriptions? Conversely: do you hear any of them bragging about how they just signed up for Peacock? Any Red Bull Cola drinkers in your family? Or perhaps you’re a fan of BlueJeans, the next-next-next-next-best video conferencing alternative to Zoom?)

Which means, by definition, if you use any of the companies dominating their respective category (or any other Category Creators—in big or small categories), then you believe in Category Design.

Implicitly.

How many things do you use/enjoy today that improve your life/work/play and did not exist in any meaningful way 10 years ago?

Here’s a quick list of billion-dollar companies that didn’t exist a decade ago:

• Robinhood

• Stripe

• Coinbase

• Bird

• Warby Parker

• Snap Inc.

• Pinterest

• Slack

• Instacart

None of these companies created a “better” product or brand.

They created a DIFFERENT product and net-new category out of thin air—which subsequently spawned dozens and dozens of other new & different products in subcategories and niches as a result (remember: new categories create new categories).

And so when people say “Category Design doesn’t work,” remove all the Category Creators from your monthly credit card statement (no Amazon, no iPhone, no Netflix, no Uber), and pretty soon, you’ll be right back to the beginning of human civilization. Category Design does work. It works every single day. And you, as a consumer, prove that it works based on your spending habits. 

Yet, we hear these 8 reasons over and over again as to why founders, executives, and even well-intentioned investors don’t believe Category Design is a viable strategy.

So, we’re going to break each one down.

And explain why this is The Big Category Lie.

#1: “You can’t create demand out of thin air.”

In 2010, on the 11th anniversary of Apple, Steve Jobs unveiled the iPad.

In his classic blue jeans and black turtleneck, he took the stage and explained to the audience how the entire world had gone digital. “All of us use laptops and smartphones now. Everybody uses a laptop and/or smartphone,” he said. Which to 99.8% of listeners meant the market was sufficiently saturated. Because if everybody uses a laptop and/or smartphone, then why would they need anything else? Everything that needed to be invented had already been invented. 

He continued: “And a question has arisen lately. Is there room for a third category of device in the middle? Something that’s between a laptop and a smartphone.”

Steve Jobs literally says he and Apple are inventing a new category.

Now, if you were a marketer, executive, or aspiring entrepreneur who watched this keynote back in 2010, what you heard was, “The iPad is another product” or “The iPad is a better product.” But what Jobs says in the unveiling of the product is that if they were going to create a third category of product, then that product would need to be better than both smartphones and laptops at a few key tasks. Translation: the product would need to define a niche of its own. (He then goes on to reinforce this category difference by pointing out that the device currently in the market customers might assume to be the solution, the Netbook, is really just “a cheaper laptop.” It’s not a different category. It’s the same existing category, just cheaper. This is Languaging at its finest.)

Today, the iPad generates $31 billion in revenue for Apple.

It’s a unicorn in itself.

Markets are not the weather.

People talk about market categories like they do the rain, sunshine, or snow.

“Well Bob, Apple’s quarterly earnings are up because demand for smartphones is surging. Meanwhile, Salesforce is getting hit because demand for cloud computing is down.”

What doesn’t get questioned, however, is where this weather comes from? Who creates it? Is demand down because that’s just the way it is? Remember: Everything is the way it is because someone changed the way it was. Today, business media and “thought leaders” on Twitter report on the weather of industries like social media, mobile banking, and cryptocurrencies. But 10, 20, 30 years ago, these industries didn’t exist. Someone had to create them before others could narrate which direction they thought the wind was blowing. 

For example: 

• What was the demand for a marketplace that allows you to buy and sell NFTs in 2019? About $0 billion. 

• What was the demand for a marketplace that allows you to buy and sell NFTs in 2020? About $21 million.

• And what was the demand for a marketplace that allows you to buy and sell NFTs in 2021? About $20 billion. 

(Opensea, the Category Creator of NFT marketplaces, captured more than 60% of all the NFT sales—or roughly $14 billion. This is what we mean when we say the Category King captures the lion’s share of the economics.)