How to Create a New Product Category in Three (Easy!) Steps
By Patrick Hall
Lessons learned from creating new product categories in technology
One of the best ways to accelerate the growth of your business and create a highly defensible market position is to create a new product category, and establish a leadership position in it. This is the grand slam of Go-To-Market plays that captures most of the market share.
I have been fortunate in my career to achieve this three times with Actuate in Business Intelligence, JasperSoft with Open Source BI, and Taleo in HR software. Here are the lessons I have learned along the way.
In Silicon Valley, creating a new exciting category is the holy grail of what most companies are trying to achieve. No one wants to be just another me-too player in a highly crowded market. But at the same time, creating a new category is not easy and many shy away from it, thinking it is not necessary to build a successful company.
Yes it is hard. It is easier to follow the pack with an undifferentiated product strategy and copycat positioning. But try to build a large, fast growing business on an undifferentiated product strategy and copycat positioning. You are a me-too player slugging it out with a bunch of similar-looking companies. Good luck!
Create something new and exciting, and own it.
Why? Technology is always driven by the next big thing. The last thing you want to be in technology is old, or worse get labeled “legacy.” This is the kiss of death for any technology. This is not true in every industry. Sometimes old is good. Coke has been selling the same drink for 100 years. Attempts to change it have been a disaster. J&J has been selling the same baby shampoo for over 50 years. Though recently, J&J decided to change the formula to address declining market share. I’ve gone thru about 8 different cell phones over the years, but my living room couch has out-lived all of them.
Technology, however, is always about the next big thing. And perhaps more than any other industry, that creates a ripe breeding ground for establishing new exciting product categories that will capture the buyer’s imagination, and their wallet. Right now the next big thing could be Blockchain, and there are about 100 companies trying to own that category. In each category, there are typically only 2–3 winners. And the creator of the category should have the best chance to be one of them.
Creating a new product category allows you to set the ground-rules based on your key advantages. It is like creating a game that only you can win. Not only are you the first-mover, you get to define the path to take. Of course it has to be truly unique and solve an important and unmet customer need. But you are defining that need and offering up your product as the only true solution. It allows you to say we have something so unique, and so new that we need to call it something completely different than everything else out there.
In tech, “new and exciting” captures customer’s attention. It always has.
So how do you create a new product category? Three easy steps.
Create the new category
Creating a new product category starts with a highly differentiated product strategy. You need something vastly different from everything else to be considered a new category, and not just lumped in with the pack. Not just a few different features, but vastly different in terms of what is does and how its used compared to current offerings. Think Twitter, Airbnb or Uber. Nothing else like them existed before. Ideally you want to leverage a major disruptive trend, like the cloud, or mobile that requires a whole different approach.
Come up with a definition for how your category is different from others. Make it simple like 3 or 4 critical requirement. These should be customer-facing things, not internal or architecture features that have no bearing on the customer experience. These are the really big things that make you different from the rest.
Come up with a cool name. A good name that is both descriptive and interesting so that it draws people in. Salesforce.com did a nice job with Software-as-a-Service or SaaS. Over time that morphed into an even cooler term: the Cloud. Talent Management was a good name for an integrated suite of HR solutions. Whatever name you pick, make sure it’s memorable, and sounds new and intriguing.
Find some early-adopter customers who can be spokespeople for your cause. No one will listen to just a vendor talking — they need validation from ideally big name customers who are well spoken with media and analysts. These will be your cheerleaders.
Own the new category
Creating the new category is not enough. You have to establish a leadership position to realize the fruits of your labor. Google was not the first search engine, Excite, Yahoo and Lycos created the category. Facebook was not the first social network. Friendster established the category but was ultimately left behind. And Tesla was not the first electric car. Creating the category is just the beginning. You need to own it by making it the center of everything you do. It is the differentiation in your product strategy and and the foundation of your messaging.
Broadcast your message of why this is the next big thing far and wide. Every media call, every analyst meeting and every customer call should talk about this category and why it is the next big thing. Analysts in particular can be very influential, and if they pride themselves on calling the next big market trends, they can be a valuable ally to help promote the category. Speaking opportunities should dive into the new category. This message needs to be consistent across all channels and from all employees to everyone you interact with. Think of the company as a bullhorn or a buzz machine with a constant stream of new category messaging coming out of it.
The good news is that you be talking about something truly unique and exciting. The bad news is that no one will know what you are talking about initially. It’s not easy being a pioneer. The easier path is to follow the pack. But you are better than that!
Also, although you may be incredibly unique and highly differentiated, there is no such thing as a one company category. So you need to find some followers with inferior solutions and bring them along for the ride. All the while positioning your company against them as the truest breed of this new category.
Grow the new category
At the same time you are singing your company’s praises to all who will hear as the leader of this new movement, remember you have a bigger and broader goal: grow the category. Being the leader of a small, insignificant category that no one cares about is a lesson in frustration.
You need to make the category the next big thing. And as the category grows, you as the established leader grow along with it. This means taking a broader view of the market and why this new category in general is better for all. Remember Salesforce.com’s tagline was “No Software”, which helped to create the SaaS market, not just promote Salesforce.com.
Also, be patient because things take time to change. Status quo is a big slow moving ship that can take a very long time to change speeds or direction. This does not mean your strategy is not working. It just means that large organizations or large numbers of consumers take time to make the change. It may take several years to catch on. And you need to continually show success, momentum and progress to convince people you really have something new. But if you persevere, stay focused and continue to promote the heck out of it as the next big thing, you will reach the Promised Land.
Actuate and Enterprise Reporting
Actuate was a business intelligence (BI) startup that entered into a crowded field of over a dozen BI companies competing for the same business. The most interesting trend in BI at that time was analytics and a solution called OLAP (on-line analytical processing.) Actuate did not do OLAP and as I was recruited to be VP of Marketing by Actuate board member Jim Breyer from Accel Partners, he told me that Actuate had something unique and needed to create a “new product category.” I nodded my head in agreement, but honestly I had no idea what he was talking about.
Over the next several months, we took a long hard look at the industry and what we had compared to the competition, and the needs of the market. It did not look good. The market was moving towards OLAP for the analysts and away from our category of reporting. Then we got a break and jumped all over it: the Internet presented a new way to easily distribute data and reports to employees, customers and partners. We were first to market with a solution and called it Enterprise Reporting. It was not for the few analysts, but for the masses. The Ying to the Yang of OLAP: a perfect combination for the whole organization. We secured a few critical articles in techie developer publications that highlighted our only successful implementation at a major financial institution and it took off like wildfire. We worked a highly influential analyst who saw the trend and decided to focus his research on it. Pretty soon, everyone was talking about this new technology remaking the sleepy category of reporting.
Soon software leaders like PeopleSoft, Siebel, Vantive and Clarify were embedding Actuate into their solutions for enterprise reporting. This gave us tremendous credibility within corporate accounts. That powered our IPO and ultimately $1B+ market cap from just $13M of venture capital.
Looking back now, it’s clear what worked so well: jump on a major new trend (the internet), develop a use case that no one else could do, secure influential early customers, media coverage and analyst attention. And broadcast it widely. Simple formula: big results.
Taleo and Talent Management
Taleo was an Applicant Tracking System (ATS) that helped companies track and hire job applicants. This was a new but highly crowded product category, but Taleo was able to establish a leadership position. Within a few years Taleo had many large companies as customers, but growth was limited by the small size of the ATS market. We needed a bigger boat to catch bigger fish.
Taleo created a new product category called Talent Management, which was a consolidation of ATS with other HR solutions including performance management, compensation and learning. It was the first full talent management suite of integrated products and we thought it would quickly capture the industry.
We began to heavily promote and sell it, only to realize that the main buyers didn’t want an integrated suite. VP’s of Recruiting wanted a standalone recruiting system and didn’t want to work with anyone from other departments. One customer told me directly, “We have a list of things we want Taleo to build for recruiting, and Performance Management isn’t one of them.” This was a potential “product-market misfit” and initial sales were very sluggish.
We realized that we were now selling to the wrong person. The VP of Recruiting and VP of Performance Management or Organizational Development only cared about their functional areas, and were not concerned with an integrated suite of solutions they didn’t need. But the head of HR, who oversaw all functions, would care about one system to manage all talent. We revised our target, raised the level of our messaging and embarked on a major education program on why an integrated suite made sense for HR as a whole. The story resonated and the category took off and fueled Taleo’s growth to over $300M in revenues when was acquired by Oracle for $2B.
Creating a category is not easy, but the rewards are off the charts if you nail it. It all starts with a highly differentiated product strategy that is so different and unique, it requires a new way of describing it. Define it. Own it. And grow it!