The Category Design Toolkit - Category Pirates, Christopher Lochhead, Eddie Yoon, and Nicolas Cole

The Category Design Toolkit - Category Pirates, Christopher Lochhead, Eddie Yoon, and Nicolas Cole

🚀 The Book in 3 Sentences

  1. The authors argue that branding comes second to category design. No meaningful category? No meaningful company. People organize information into "categories" in their minds. Are you a B2B enterprise software company? Do you sell plastic widgets on Amazon? Maybe you're a small business owner, a biotech entrepreneur, or a YouTuber. You either create your own to be placed in or people put you in a box they decide.
  2. In order to have a meaningful impact on the world, in order to become known for a niche you own, and in order to dominate your industry in a way that separates you from any and all competition, you must create your own category.
  3. Most companies are  mercenary as opposed to Missionary—and why mercenary entrepreneurs and executives unknowingly compete over 24% of the market.

🎨 Impressions

👤 Who Should Read It?

All consultants should read it for the new perspectives on positioning it presents but not everyone should try to implement it.

It is definitely for Consultants who:

Larger Consultancies who  have significant stable cash flow, experience in selling innovative solutions, belief changing and displacing the safe status quo.

It doesn’t apply to:

Smaller Consultancies with unstable cash flow – read the book and get new insights but don't adopt it as a new way to approach the market. If you don't have stable cash flow then you have no ability to invest the time and resources to even begin to create a new category and then sell it. You are better off selling consultancy that aligns with what companies are used to purchasing. Build and then protect your core and then look to innovate. This resource to help you get consulting clients is a great start.

✍️ My Top 3 Quotes

"Category Design: The mindful creation and development of a new market category, designed so the category will pull in customers who will then make the company its Queen. In marketing terms, this is about winning over popular opinion, and teaching the world to abandon the old and embrace the new. But very few companies gather and leverage data naturally generated by their products and company to forecast the future of the category."
"We’ve become a culture of quick tips, growth hacks, and short-term solutions where the primary value being given to the reader is the answer. Not a reframing of the question"
“Be Different” companies care deeply about the category point of view and problem, and are committed to creating a different future"

📒 Summary + Notes

What follows is my largely unedited notes from the book:

Category designers introduce the world to new ways of living, They are people and companies who move the world from the way it is, to the way they think it should be—often by solving a problem people didn’t know they had or by reimagining a known problem and then creating the potential for a radically different solution.

Category designers play the game differently, and experience outsized rewards as a result.

We created this scorecard after reviewing companies from the Fortune 100 Fastest-Growing Companies list and analyzing their 10Ks, Annual Reports, Investor Presentations, and Investor Relations websites.

Companies were scored in five key areas on a 0 to 2 scale: 0 being the company does not successfully accomplish each area’s goal, 1 being the company partially accomplishes the goal, and 2 being the company successfully accomplishes the goal.

(Area 1) Category POV: Does the company have a clear “Point of View” of their category? Are they able to frame a powerful problem, articulate a compelling vision, and most importantly, communicate the core compromises, trade-offs, and problems inherent to the way the category is today, such that the consumer/customer will be open to a new and different approach?

(Area 2) Future Category Reimagined & Without Compromise: Does the company cast a compelling future—free of these fundamental problems, compromises, and trade-offs inherent to the category? Are they able to explain what the category looks like in its true glory where the customer/consumer is transformed, partners are proud participants, and the company generates…

(Area 3) Radically Different Offer + Business Model: How does this new category get delivered to the customer, both through a breakthrough product/service/offer, but also through a breakthrough business model? How does product innovation and…

(Area 4) Data Flywheel: Does the company generate data about customer/consumer demand/preferences (be it intentional or as a side effect) that creates a unique opportunity and advantage to anticipate the future of consumer demand and any category shifts? Does this Data Flywheel provide insight into not only how to improve…

(Area 5) Depth & Degree of Customer Outcomes: Does the company generate satisfied and ecstatic customers/consumers? Are they so happy and satisfied they gladly evangelize the product/service to others? Or, even better, do customers want to tell their own stories of radical transformational…

60% of companies on the list scored 0 to 2, and were much more focused on “beating the competition” than innovating or creating something entirely new.

20% of the companies scored 3 to 5, and were more focused on “being the best” within an existing category—not “being the leader” of a new category. The final 20% of the companies scored 6 to 10, and were companies clearly trying…

This is a powerful signal as to why investors frequently pay a premium for category potential. They understand the company who designs the category is best positioned to dominate it.

Net-Net, Companies Tend To Cluster Into 3 Buckets “Be The Winner” “Be The Best” “Be Different”

The Winner” companies realize it or not, these words signal to customers the unchanged nature of their category—and hope, using status, to convince them not to switch to a next-best alternative/competitor.

Category POV/Problem = 0. They don’t see anything wrong with the category and would rather not change.

Future category reimagined = 0. Again, nothing to change, so no reason to educate customers on a different future.

Radically different offer and business model = 0-2. This is likely the only place these companies score. They tend to have a great product, maybe a great business model, or even both. But they have no ambitions beyond this particular area.

Data Flywheel = 0. No need to anticipate future category and/or customer behavior shifts because the overwhelming belief is “the world tomorrow will be the same as it is today.”

Depth & Degree of customer outcomes = 0. Again, the customer is not what they care about. They care about maximizing returns for investors based on their position in the category today.

“Be The Best”: Scores 3-5 “Be The Best” companies want to be seen in the market as having the best product or the best technology. They are innovation and R&D focused, but almost exclusively through the lens of having the best tech/R&D/product for the sake of being able to win the “Be The Best” debate out in the market. You can spot these companies from a mile away because they literally say, “The best, the fastest, the cheapest, the smartest…” before describing what they do or how they do it.

Silicon Valley dogma says, “The best product always wins.” Sure, but for how long? While these types of companies may achieve success in the short term, they only maintain their leadership position as long as they remain “The Best” in an unchanged category—meaning their winning position is dependent upon someone else not designing a different future.

Category POV/Problem = 1. These companies articulate the category problem as having outdated technology/products, but they don’t think about it from a customer/consumer standpoint.

Future category reimagined = 1. Their vision of the future is myopically about a “better mousetrap” in an existing category opposed to creating a different category of product altogether.

Radically different offer and business model = 1-2. Similar to “Be The Winner” companies, “Be The Best” companies tend to score well here. Primarily because both “Be The Winner” and “Be The Best” are focused on beating the competition to squeeze as many rewards as possible out of an already established category.

Data Flywheel = 0-1. They may have a Data Flywheel, but almost always as a means of improving the technology—not seeing where the category as a whole is headed.

Depth & Degree of customer outcomes = 0. Again, the customer is not what they are about. They care about maximizing returns for investors based on their position in the category today, and helping the customer up to the point that proves their “Be The Best” standing in the market.

“Be Different”: Scores 6-10 Tesla. Amazon. Netflix. Apple. Spotify. Airbnb. Picasso. These are the true category designers—the companies that end up writing or rewriting the rules of the game and driving all the “Be The Winner” and “Be The Best” companies either out of business or out of relevance. “Be Different” companies care deeply about the category point of view and problem, and are committed to creating a different future.

As a result, their scorecards look like this:

Category POV/Problem = 1-2. These companies tend to have a clear view of the category problem, though some articulate it better than others.

Future category reimagined = 1-2. In general, they also tend to signal/talk about the future reimagined, but not all “Be Different” companies fully articulate this in a meaningful capacity.

Radically different offer and business model = 1-2. Similar to “Be The Winner” and “Be The Best,” “Be Different” companies also score well here.

Data Flywheel = 1-2. Sometimes companies don’t have this, but the great ones do—and see data as the key to anticipating where the category (and customer behavior) is headed in the future.

Depth & Degree of customer outcomes = 1-2. These companies tend to be radically generous, and generate an incredible amount of abundance not just for their customers, but for the company, employees, investors, suppliers, surrounding communities, and broader society as well.

We’ve become a culture of quick tips, growth hacks, and short-term solutions where the primary value being given to the reader is the answer. Not a reframing of the question.

They are thinkers who believe that thinking about thinking is the most important kind of thinking. They want to be given questions to consider (because questions spark thinking), not surface-level conclusions to nuanced and complicated problems.

Product Design: The purposeful building of a product and experience that solves the problem the category needs solved. The goal here is what the business world traditionally calls “product-market fit”—which we see as strategically flawed thinking. What you really want is “product/category fit” (which we’ll clarify in a bit).

Company Design: The purposeful creation of a business model and an organization with a culture and point of view that fits with the new category. The goal here is company/category fit, meaning you have engineered the right business model and missionary team for the problem you are looking to solve.

Category Design: The mindful creation and development of a new market category, designed so the category will pull in customers who will then make the company its Queen. In marketing terms, this is about winning over popular opinion, and teaching the world to abandon the old and embrace the new. But very few companies gather and leverage data naturally generated by their products and company to forecast the future of the category.

Companies that believe in mantras like “the only thing that matters is having the best product” are often the ones that fall into category comparisons. They compete in existing market and categories, unconsciously playing a game designed by someone else (and their own respective POV of the rules of the category). As a result, they become great “next-best” alternatives, but rarely innovate

The idea here being that if your product is “good enough” (to which we would yell back: “IN COMPARISON TO WHAT?”), marketing will “take care of itself.”

Problem number two was that Segway had no category design. Nobody knew what to call “this new category” of transportation. Was it a replacement for a car? Well, no, because you can’t take a Segway on the highway. Was it a replacement for a bike? Well, no, because although it had tremendously powerful self-balancing technology, it wasn’t suitable for most biking adventures. Was it a replacement for a scooter? Supposedly, considering it was often referred to in the press as a “superscooter” and lobbyists had been hired by the company to “persuade state legislatures to rewrite their laws to permit  Segway scooters to operate on city sidewalks.” Which meant the product wasn’t actually evangelizing a new category. It was just a “better, faster, smarter, stronger” attempt at product innovation aimed within the existing scooter category. No new category design. No new POV. And no framing, naming, and claiming of a new and different future for customers.

Company/Business Model Design: when company/business model innovation can be just as powerful (and exponentially more so when combined with the other sides of The Magic Triangle).

Salesforce charging companies a subscription fee instead of selling higher-ticket, one-time products (which was the status quo in the late ‘90s and early 2000s) was another.

The key here is to approach the business model with a missionary mindset opposed to a mercenary one.

Missionaries see the future category as a land wherein “everyone wins,” and strive to create something completely new that unlocks abundance for all parties involved: customers, employees, and investors.

Mercenaries, on the other hand, just seek to monetize and exploit.

Said differently, Category Designers look to make money in fundamentally different ways than other businesses in their industry. They innovate in the gaps between where the category is and where it should be, and add value in places others failed to see (or decided were inconsequential).

Doing this, in addition to breakthrough product design, is what allows you to separate yourself further and further from any and all competition—creating the perception of being irreplaceable.

You DO NOT want to market within an EXISTING market. Instead, you want to create a NEW and DIFFERENT category/market, which you now have free reign to market WITHIN.

Conventional startup wisdom goes like this:

Product-market fit is one of the most dangerous ideas in entrepreneurial history. It tricks people into thinking that success is about “fitting” INTO a market.

Legendary companies, legendary innovations, and legendary category designers do not care one iota about “fitting” into an existing market.

What you are trying to achieve is Maximum Viable Category. Or, as we’re now going to call it, MVC. Listen to the words “Minimum Viable Product.” Say it slowly. Minimum. Viable. Product.

Minimum Viable Anything is a waste of time—and sets you up for playing a comparison game in the market. “How does this compare to what you’re currently using? Do you think, if we keep making this better, you’ll make the switch?” (And remember, every time you say “better,” you’re asking to be compared.)

Instead, your goal—as an early-stage startup founder, or executive within a large organization looking for new ways to grow—is to play the game of category design. What new niche within an industry where we have strong interest/expertise hasn’t been created yet?

Is this niche compelling? Do we have data or insight telling us there is a strong tailwind blowing in this direction? Is this niche specific enough to customers? Are we drilling into what exactly this new and different problem is? Will they “get it?” What POV will educate them so they do “get it?” Does this niche have growth potential? What if we’re right? What might the world look like if this niche becomes the new and commonly accepted way of doing things?

Then, once you’ve determined where there is an opportunity to CREATE (not “compete over”) a new and different future for customers/consumers/users, of course be smart about product development. Create an alpha version. Expose it to a small number of people you trust—ideally your “Superconsumers.”

(Data flywheels are also how you can anticipate the direction of future headwinds and tailwinds.)

Axon Enterprise, Inc. (which may not be well known, but its breakthrough product—the TASER—is well known). This is the device used by law enforcement that shoots electrified wires to stun and disable a subject. Axon’s mission is to make bullets obsolete—that’s the company’s unique POV.

Their thesis was: law enforcement and everyday people didn’t just want safer weapons. They wanted safer environments. They wanted transparency.

Now, let’s tie this all together. Every company faces 3 risks when forging their way in the world: Execution Risk (“Can we create a meaningful product in the time frame that matters?”) Competition Risk (“Are we the team and business capable of winning the category battle?”) Category Risk (“Are we Naming & Claiming the category wherein we are the undisputed Queen?”) However, when it comes to prosecuting The only one single point of failure. You can get the product wrong and tweak it over time. You can get the company/team/business model wrong and tweak it over time. But if you get the category wrong, you’re finished. Let us give you one final example.

Because once people “see” the new category, and come to the conclusion they want it, they can’t unsee or unwant it. Even from a lousy company.

When you have clarity on the category you are trying to create and design, breakthrough product innovations and breakthrough business models innovations are good but, to be blunt, not always essential.

This is perhaps the most important insight to understand about Superconsumers when it comes to category creation. Your ability to create and design a legendary business in a new and different category comes down to how effectively you can span multiple categories of the same Superconsumer.

When Tesla puts out an impact report, do you just see a pie chart? Or do you see a product pipeline? What should be excruciatingly clear is that electric vehicles (Tesla’s core business today) are only half the problem of total electricity & heat production. And if Tesla’s POV is to accelerate the world’s transition to sustainable energy, then Elon Musk is telling the world what he’s going to do next. Translation: Tesla will soon redesign and dominate other energy categories as well (A Super of 1 is a Super of 9), such as residential and commercial HVAC systems—likely leveraging the current breakthrough HVAC system in the cars today. (Nevermind the solar category!)

“In today’s experience economy, we believe that XM™ is more critical to improving customer experience than CRM, more influential upon employee experience than HCM systems, and more important to enhancing brand experience than Marketing Automation. Consequently, we believe that XM™represents a vast, rapidly growing, and underpenetrated market opportunity, and we estimate our total addressable market to be approximately $44 billion in 2018.”

Notice the company is not saying, “We believe we are going to be worth $X.” Qualtrics is saying, “We believe the CATEGORY of Experience Management is going to become THE dominant category—and the value

They buy your position in an exciting, emerging, and fast-growing category. They want to own a stake in the DIFFERENT future value that you’re creating. The big question here, of course, isn’t just whether the category is growing but whether or not you are the one best positioned to capture two-thirds of the category growth by successfully prosecuting The Magic Triangle. It’s a mistake to say, “We are one-of-many companies in this fast-growing category.”

Category Leaders specifically talk about the life / business outcomes

Superconsumers achieve due to the company’s mix of “breakthrough offer” innovation, “breakthrough business model” innovation and “breakthrough data-flywheel.” They talk about how consumers/users/buyers/subscribers are transformed from something they once were, to something new they now aspire to be.

OK - A note from Peter (ME) now - I had to cut my notes short here as I was in danger of duplicating the book which isn't fair on the authors. If you have gleaned enough value from the notes then do yourself a favour and go buy the book at the link below

Category Design Toolkit

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