Why Native Digitals (People Under 35) Are A New Category of HumanâAnd How Theyâre Transforming The $6 Trillion âStuffâ Business
Category Violence: the relentless exploitation of the incumbentâs voluntary immobility.
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Dear Friend, Subscriber, and fellow Category Pirate,
Do you know why the most well-known and successful brands in the world falter?
Do you know the precise moment a category king or queen loses control over their kingdom?
When a new category arises (seemingly out of nowhere), the incumbent doesnât topple over because they were unaware of the new category queen.Â
They fall because they dismissed what was happening right before their very eyes.Â
Itâs not ignorance. Itâs arrogance coupled with the gravitational pull of âthe way it is.â Because the people profiting in the present want things to stay the same.Â
âEh, Keurig and K-Cups are a fad. That will be a small niche.âÂ
âCloud computing is nuts. Major enterprises will never give up their data centers.â
Until the niche category becomes THE categoryâand what was once new becomes old.
This is called Category Neglect.
Category Neglect doesnât come from people being stupid or lacking sufficient data and resources to spot the headwinds and tailwinds of the future.Â
It comes from a refusal to acknowledge which direction the wind is really blowing.
Craft beer, Greek yogurt, Cloud computing and single-serve coffee were all trends that could have been spotted and addressed 5-7 years before they crossed over into the mainstream by Anheuser-Busch, General Mills/Yoplait, IBM and Nestle/Nescafe. These companies collectively spend 9 figures on data to better understand consumer behavior. In its heyday, Anheuser Busch alone spent over a billion dollars on sales and marketing. And back when P&G owned Folgers, an up-and-coming executive went to his boss and told him about an interesting new coffee company out in Seattle called Starbucks. He suggested they look at acquiring them, but was told, âSon, weâre not in the food service business. We build the most powerful consumer brands. We are the best marketers in the world. Weâve got nothing to worry about.â
When this happens, incumbents (and their employees and investors) stand to lose billions in market capitalization.Â
All because they chose contempt over curiosityâthe way it is, over the way it could be.
The Cautionary Tale of Tymshare
Pirate Christopher remembers a story he was told about a time-sharing company (selling computer time and software packages for users) called Tymshare.
They were having an executive team strategy meeting. Â
The company was based in Cupertino, California, and a debate ensued about the newly emerging âpersonal computingâ category. And like most incumbents, drunk on the companyâs current-day profits, the executives in the room dismissed it. They unanimously agreed âpersonal computingâ was nothing to worry about. Simultaneously, through the windows of this exact meeting room where this discussion was happening, you could see the cranes across the street building Appleâs new headquarters.Â
Tymshareâs leadership could not see the future being built. Even though it was happening right in front of them. (You canât make this stuff up.)
Netflix co-founders Marc Randolph and Reed Hastings famously experienced a similar moment when meeting with Blockbuster CEO, John Antioco, in the summer of September, 2000. Randolph and Hastings went into the meeting with a proposition for the two companies to join forces, and ended with a proposition for Blockbuster to acquire Netflix for $50 million.
To which Antioco, âstruggling not to laugh,â said, âThe dot-com hysteria is completely overblown.â
He didnât just dismiss Netflixâs point of view of the world.
He was borderline insulted by it.
Of course, everyone knows how the Blockbuster vs Netflix case ended. In 2004, Blockbuster had 9,000 stores globally earning $5.9 billion in revenue. By 2005, the company had lost 75% of its market value. And in 2010, Blockbuster filed for bankruptcy.
Game over.
This happens because the gravitational pull is too strong.
A company gets used to earning hundreds of millions, or billions of dollars per year, and thinks it can do no wrong.Â
The gravitational pull of building a great business takes over and prevents these well-intentioned executives and entrepreneurs from objectively observing the future taking place and capitalizing as a result. They forget what originally made them successful was their ability to change the way âitâ was to the way it isâand that, if they arenât careful, someone else can come along and change the way âitâ is now.
The company becomes deeply invested in the present. And anything that threatens the way it is now is dismissed.
The problem with contempt in business is that itâs emotional. Itâs not objective. When you have contempt, the data can scream in your face that a niche category is growing fastâand you wonât be able to hear it. Youâve enrolled yourself in the âbest brand will always winâ cult (or worse, the âbest product will always win cult) and become myopic.
But contempt is also multi-dimensional and manifests in ways beyond just contempt for competitors. Itâs often contempt for customers, like when companies cut costs by lowering quality assuming their customers are too dumb to notice, or jam them into punitive contracts to trap them into buying. Itâs contempt for their suppliers, forcing ever worsening payment terms on vendors. It is a sad statement when companies invest more in their procurement departments than in their product and category innovation.
Your actions say, âI know better than you,â until all of a sudden, youâre done.Â
Contempt weighs you down, and makes it difficult to steer your ship when your life depends on it. The gravity of todayâs category revenue can pull your eyelids shut to the possibility of a different future.
Native Analogs vs Native Digitals
Typically the last company to adopt a new category paradigm is the number one company in the old category.Â
Whenever a category king or queen begins to neglect their category (aka: dismisses the niche category growing quickly before their very eyes), this leaves them vulnerable to what we like to call Category Violence:Â the relentless exploitation of the incumbentâs voluntary immobility.Â
One of the most profound shifts happening in the world today is rooted in the ever-escalating debate between generations young and old. It is a shift hiding in plain sight. And just like the Tymshare executives staring out the window at Appleâs cranes building the headquarters of the company that would ultimately put them out of business, most people over 35 years old canât see this shift happening.Â
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