How to Create A Transformational Category Like A Scientist

What entrepreneur does not dream of boldly leading the largest and most important company in a hot, rapidly growing category?

Companies like Salesforce in business application software, Peleton in at-home social fitness, and Uber in on-demand transportation have captured our imagination while driving incredible wealth for society. How are these categories created? Is it blind luck? Creative genius? An outrageous facilitator at an offsite? 

While luck and creativity surely play a role, I believe that categories can be created with a systematic process. This process has its focus on a deep understanding of the mental models of a special segment of the population. In over 25 years of category-creating entrepreneurship, including founding Eloqua and Influitive, I have discovered, studied and applied this approach, and in a series of posts will share with you what I have learned.

What is a category?

Categories are widely discussed in philosophy, linguistics and neuroscience. The dictionary defines them as “a class or division of people or things with shared characteristics”.

Business categories are critically important because of how customers and competitors in business change their behaviour as their context within the category changes. Customers often do not even remember the 3rd or 4th solution in a category. Competitors don’t want to be a laggard in their category, as every aspect of their business becomes so much more difficult. Human brains have their biases and short cuts that have been crucial for our survival as a species. Sorting things into categories is an essential skill for people to prioritize the actions required for their survival and then to act on them quickly.

Business categories were coined and popularized in the 1980’s to talk about a class of similar business products such as comparable “categories” managed together on the aisle of a supermarket. [1] Category management now has a large, respected following among successful technology leaders – with books like Category Creation by Anthony Kennada & Play Bigger by Al Ramadan, Dave Peterson, Kevin Maney and Christopher Lochhead - and newsletters, like the popular Category Pirates. These thought leaders teach software executives how to design their software categories, to build much more valuable businesses – businesses that grow faster and more efficiently than their peers stuck in lacklustre “predecessor” categories.

They often charge hundreds of thousands of dollars per engagement for this advice. Even as a categorymeister myself, I have paid for category design services firms to help me when I was running companies, because an outside perspective is valuable. The high rates speak to the immense value of getting the category right.

Why are categories important?

If a company can take full advantage of creating, discovering and managing their market’s category, the rewards are enormous. Category “kings” – those with a relative market share of 3 or more, are often worth more than the entire predecessor categories that they emerged from. [2] They achieve rapid and efficient growth, raise capital at high valuations, and hire the best talent.[3]

They are also a ton of fun to run and work for. Because people are so well developed in a company that scales rapidly, “mafias” of talented employees often grow to build and fund companies of their own. Category creators drive tens to hundreds of billions of dollars in wealth for the communities that they serve. Steve Jobs famously called this “making a dent in the universe.”

Personally, I am not as inspired by dents - and I can’t fully grok the universe. I am inspired, though, by creating the world’s greatest playground - one that develops and nurtures everyone that plays in it to their greatest potential. Many of the category creators that I have met in my journey have been inspired by the same idea.

My category creation journey

I first became interested in categories from both a theoretical and practical perspective when I was studying for a PhD in Neuroscience at Northwestern University. I was interested in marketing from prior businesses I founded in high school and as an undergraduate - and the brain was where marketing, which involves both cognition and emotion, came together. My reading list included the latest research into the then-new research category of behavioural economics and the neuroscience of memory and emotion. It also included the “neuromarketing” classics like Ries and Trout’s Positioning, Robert Cialdini’s Influence - and David Ogilvy’s On Advertising.

In 1998, I left neuroscience ultimately and academia at Northwestern for a more applied approach at Bain & Company. There, I could take what I had learned, and apply it in real-time, with real companies. These included some of the largest insurance providers in the world and their sales and marketing teams. Discovering huge inefficiencies in the ways that these teams were being run - I left to take advantage with Eloqua, enabled by the internet and new cloud technology. 

In 2000, I founded Eloqua & also began to create my first software category - the “Demand Generation” category, which ultimately expanded into a multi-billion dollar “Marketing Automation” category. This category was the first to zero in on “demand generation marketers” - a group of underserved heroes at that time. Eloqua gave them tools to solve their most pressing problem – nurturing and prioritizing leads until they were ready to be worked by sales teams.

Eloqua eventually went public and was acquired for $871M by Oracle. The Marketing Automation category today is valued in excess of $20B and has hundreds of successful companies participating in it. 

In 2007, not yet ready to build another SaaS rocket ship - and wanting to develop my ideas, I worked with several category-creating software start-ups on their product marketing across North American and Asia. This included their positioning, messaging, pricing and go-to-market plans. Product marketing is a critical piece of great category design and subsequently became an area of focus for me in my career.

 In order to exploit what I learned building Eloqua and through my consulting projects, I founded Influitive in 2010. This included the power of customer evidence & social proof on accelerating the buyer decision-making process. “Advocate Marketing” was the category that my team discovered – and subsequently, began to dominate. 

In 2019, I decided to leave Influitive after helping it grow to mid-8 digits in ARR as I did at Eloqua. While staying on as Executive Chairman, I founded Categorynauts to share what I had learned – and help other founders discover, develop and dominate their own market categories.

How to create a category like a scientist

Many company leaders want to create a category. To be the leader in a rapidly growing category is a predictable driver of wealth. It also can be gratifying for the ego. Unfortunately, the typical process is to gather company executives in the proverbial “smoke-filled room” at a company offsite to figure out the name and characteristics of the category, centred around self-perceived product feature differentiation. This approach often leads to failure, where the category does not catch on with influencers or competitors - and ultimately fails to grow.

I have developed a different approach to category creation. I believe that categories are actually created in the minds of special users that I have called the “underserved heroes” – people who think differently about a problem they have from the rest of the market – and who become elevated in importance and number as a result of powerful technological and societal trends. The first job of the successful category creator is to discover that category, and then systematically develop and dominate it – like a scientist. Science is all about creating a model for how a phenomenon works, and then testing the model with well-designed, controlled experiments. The data that results update the model and - if done right, guarantees a better chance of being successful. 

A scientific process for category creation

The steps for scientifically creating a transformational category are:

1.    Discover the underserved heroes that will be massively elevated by powerful trends in technology and society. Understand their mental models, how they are influenced, their needs and attitudes in detail, and prepare to serve them better than anyone.

2.    Develop a transformational solution that precisely meets the needs of your heroes, with a revolutionary business model that radically and profitably removes risk to adoption. Mobilize your heroes with a galvanizing idea and a movement that inspires religious fervor. Nurture category health and prioritize it over winning market share from category competitors.

3.    Dominate your category by building a winning culture, fully developing your people, innovating the process, differentiating your product, and scaling an efficient go-to-market machine. Operationalize your movement by being the clear category leader in community, thought leadership, alliances, functional user development and industry commitment.

I will be diving further into these steps in detail in subsequent articles.

You can sign up for updates on Categorynauts' LinkedIn and at www.categorynauts.com

[1] “Category Management”, coined by USC Professor Brian F. Harris, referred originally to the study of retail categories in the 1980s. Supermarkets and suppliers would often collaborate to maximize sales of a given “category” of related products on a given supermarket shelf.

[2] RMS is the market share of the category leader divided by the next largest category participant. An example of a dominant RMS is how Tesla has outpaced other car manufacturers to become the dominant maker of electric cars. Tesla’s equity is now more valuable than the entire rest of the industry combined.

[3]Category Pirates author Eddie Yoon found in his research that “only 19% of Fortune’s 100 Fast-Growing Companies are “category designers” - yet, they captured 51% of the revenue growth (*2.7x their share), and 80% of the market capitalization (*4.2x their share) of the cumulative three fiscals years prior.