“The best companies don’t just invent something to sell us. They are not making products or services that just incrementally improve on whatever came before. They don’t sell us better. The most exciting companies sell us different. They introduce the world to a new category of product or service—like Clarence Birdseye creating the very idea of frozen food a century ago or Uber defining on-demand transportation in recent years.
These companies replace our current point of view on the world with a new point of view. They make what came before seem outdated, clunky, inefficient, costly or painful. They give us new ways of living, thinking or doing business, many times solving a problem we didn’t know we had – or a problem we didn’t pay attention to because we never thought there was another way.
These companies exert a gravitational pull on their markets, and end up with the lion’s share of the value. Recent research shows that it’s a winner take all game. Our research shows that the category leader – we call them a category king – commands 76% of the market cap of the category.”
Lochhhead says that this “category-oriented” thinking should now supersede the old-fashioned way of starting businesses around “products”: “On a high level, most entrepreneurs essentially do two things – they go to work on a legendary product that’s predicated on that insight around the problem and they go build that product and we’ve never met an entrepreneur that didn’t think they had an amazing product and the best product. Their marketing screams – “look at our awesome product that does all this cool fucking shit faster, better, cheaper, blah, blah, blah.”
What they don’t realize of course is that nobody buys a solution unless they have a problem.”
Lochhead explains why thinking around “categories” helps successful start-ups scale much faster and with greater profitability: “First you come to terms with the fact that companies and products don’t live in space. They live within a container in a customer’s mind. That container is a category.
Categories have become the organizing principle for customers for centuries. Customers use categories as mental “tags” for new products and companies. These tags make it easier for people to understand new products and offers.
In times of uncertainty and change, our brains are governed by more than fifty different cognitive biases that push us toward decisions based not on facts and logic, but on instincts that can be at odds with facts and logic. It’s a shortcut system in our brain — a way to make decisions faster and easier…
And that’s exactly the mode of thinking that our brains turn to when faced with exactly the kind of over-stimulated, methed-up, crazy-ass marketplace we have today and will have in spades in coming years.
Most customers need to buy into the idea of the new category, before they consider buying a new product. You have to think cloud file sharing is important before you ever compare Dropbox to Box.com. You have to know what a SUV is before you start test-driving Ford Explorers, Chevrolet Tahoe or Toyota Sequoias….”
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