3 Rules for Creating a New Product Category

How and When to invest in creating a new product category

One of the oldest refrains in the venture capital book is "don't invent a new product category, just disrupt an existing one". "Why?" the naive entrepreneur asks. "because it's too expensive to create a new one" the cash-burn sensitive VC replies.

This received wisdom is, alas, often true, despite the entrepreneur's deepest desire to set the world on fire with something completely new. Creating demand for a product which didn't exist before is HARD. And usually people assume "creating a category" for such a rare beast means LOTS of advertising. And guess, what? The VC's DON'T want to pay for that. They want to pay for engineers and scientists to create cool new widgets that "sell themselves". This approach has morphed into the concept of "Product-led growth". Make your product so viral and easy to use, everyone just picks it up and exclaims "I always knew I needed this! How much?"

Some companies with a big, established brand scan afford to "create a category" in the mind of the user. Apple's launch of the iPod digital music player is a classic case. While these types of products had existed before the iPod, it wasn't until Apple launched its memorable, beautiful, multi-million dollar campaign to make the iPod well know and sexy did the category really get "created." (as in "widely known") .

But back in the year 2000, as I was getting ready to launch WebEx, the world's first interactive web meetings platform, we realized we had a big problem: no one knew what video web meetings were and similar products out there hadn't taken off. Nothing like this existed before. The best-known, similar product at the time was a Windows software called NetMeeting, which Webex resembled in some functionality but still, was fundamentally different: Netmeeting was a standalone Windows client, WebEx was a SaaS-based network that made web meetings easily accessible from any browser on any platform across the globe. (This was the primary reason we chose the name "WebEx", to distinguish it from old-style, clunky Windows software).

So we were up against this old advice of "don't blow the bank" on advertising to "create a category" even though we needed to create a category! Could we do it? Well, as it turns out WebEx met all 3 of the rules/criteria for making it worth the investment in category creation:

Rule #1: The product must be viral. WebEx scored huge on this rule: the more web meetings users held, the more they exposed it to new potential customers

Rule #2) The company must have first mover advantage in a huge market. WebEx's first-mover advantage was obvious to anyone who saw the product in the early days. Anyone who thought about it for about 2 seconds knew a first-mover winner in the video meetings category would clean up market share and refine they way we work.

Rule #3) You must have a focused Go-To-Market strategy. WebEx first adoption use-case was for a much smaller population than "everyone": get technology sales people to adopt WebEx for online sales demo meetings

When we put Webex's potential together under all 3 rules, we knew we were likely to emerge as the first-mover leader. But let's be clear: our plan was NOT to do a multi-million, multi year advertising blitz like Apple and iPod. Rule #3 mitigates against that high-burn approach for startups. Our goal was to raise the visibility of the company (for financing purposes) and create enough awareness of the product in key markets that we could drive adoption and growth. With that intitial investment we believed we could jump-start the viral engine of product growth with enough meetings happening to take over where the advertisement left off.

So we put together an incredibly edgy, creative campaign to launch Webex and the web meetings category. With an amazing creative and PR team led by Kelli Christman at the Free Range Chicken Ranch and Melody Haller at Antenna PR, we created the "Meetings Used to Be a Real Drag" launch campaign starring RuPaul. The rest as they say, is history: we launched Webex in 2000 at the Demo conference and soon thereafter launched a 5-city focused advertising campaign featuring Ru as the "towering glamazon" of web meetings in a Super Bowl spot.

This Super Bowl ad immediately went viral and created an avalanche of free-trials and leads for sales via huge earned PR placements, helping us leap-frog to become one the the most visible new brands in the early Dot Com era. About 6 months later, the company went public and hopped on a growth curve rarely seen in tech: we grew from $2 million to $25 million in revenues the year of RuPaul's spot and almost quadrupled to $80 million in the year after. We kept doubling for several years after that.

The stars really have to align properly for this type of bold category creation campaign to work. If you meet the 3 rules defined above, its' worth going for it. In the my next article, I'll show how we pulled off a similar feat with Freshworks, the first Indian SaaS company to go public in the US.