Reprinted from SandHill.com

Category: The Single Point of Failure Why did Google win in search? Then lose with Google Docs? Why did Amazon win with AWS? Then lose in smart phones? And why did Colgate win in toothpaste? Then lose with lasagna!? In a word, category. It turns out attacking existing market categories with new offerings is a disaster. A lot of venture capitalists like to say, “We invest in great teams.” Every CEO likes to say, “We hire A-players”. But a great team is nothing without a great category. And categories make companies. Not the other way around. As a matter of fact, your category is your single point of failure. No category, no customers. Or even worse, if someone else gets a hold of the agenda in your category they will position themselves as the leader and you’ll get to be MySpace. While writing, Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets, we analyzed every venture-backed tech company founded since 2000. We discovered that category kings in tech earn 76 percent of the market capitalization (aka total value created) in their space. Making high stakes category dynamics worth exploring. Google is a great brand because it is the category king of a great category, search. But in the category of "productivity suites" the Google brand is a loser. Because Microsoft is the category king. As a matter of fact, Microsoft Office has a whopping ninety-five percent market share and does over $12 billion in sales.  When Amazon attacked entrenched category king Apple in smart phones, they got crushed too. Same story. And you can guess what played out when Colgate entered the lasagna space! These category disasters happen over and over and over. Unfortunately many executives make an unconscious, un-questioned choice to position their products, services and companies in an existing category. On the surface, it makes sense. You see a big market, you have an idea for a good product, maybe you lower the price a bit and pick up the “fast follower” position in a big space and make a bunch of money. Sounds like a perfect strategy. But it fails way more than it works. Category disasters have three things in common:

Large existing market

Incumbent category king

A new competitive offering (that ultimately fails)

These multi-billion dollar category disasters don’t have to happen. Categories can be designed. Just like products and companies can be designed. Some executives talk about “the market” like it’s the weather—something that happens to them, verses something that they can affect and even drive. Problems create categories. New problems or existing problems re-imagined create, or re-create categories. The most successful innovators are natural “category designers”. They are business leaders who intuitively understand that to win, you have to have the courage to change thinking, behavior and ultimately purchasing. By changing thinking, category designers change a market. They condition a market to see things the way they want them to. Steve Jobs was the master. In a well-honed category design strategy, a company designs the category, evangelizes the problem, offers its solution, and then the category