- Dan Schoenbaum
Lessons Learned From a Habitual Category Creator
Competing head-to-head in business can be an expensive, cutthroat, and often frustrating effort yielding minimal returns. Throughout my experience in Enterprise and SaaS software startups, I have observed countless companies try to pull ahead by innovating, adding new functionality, or by offering cheaper solutions. When this happens, companies tend to converge along the same competitive dimensions and become overly focused on beating one another and lose sight of the customer. This is a losing battle for vendors, investors, and pretty much everyone involved.
Three times in my career I have been fortunate to be part of a team where we found ourselves in heated, competitive situations in crowded markets and we collectively found the courage to think exponentially and completely redefine competitive boundaries by creating a new category. Twice, this occurred at SaaS cybersecurity companies and the other time was at enterprise software company Mercury Interactive. In each case, the effort required a different pattern of strategic thinking. Instead of looking within the accepted boundaries, we identified unoccupied territory that represented a breakthrough in value.
According to Harvard Business Review, companies that were instrumental in creating their categories accounted for 53 percent of incremental revenue growth and 74 percent of incremental market capitalization growth. They also found greater access to capital and enjoyed greater exit multiples.
There are many examples of companies who bet big on category creation and are now multi-billion-dollar leaders: Gainsight created the customer success category, Salesforce created the first SaaS CRM, and Hubspot invented the marketing automation platform. For every company that found these levels of success, there are scores of failed attempts, and – as you can imagine – investors will often advise that creating a category is cost prohibitive and is generally, a bad idea.
The courage and patience category creation requires results in phenomenal market success, not to mention great financial outcomes. The primary goal of this article is to share the valuable lessons learned from creating categories across all three companies.
Lesson #1: Make it about them …not about your product
Companies, especially software companies, fixate on marketing product capabilities, features, and techno-babble. I have news for you – nobody cares… especially not your customers. If you create a category or even a new approach to solving a problem within your market, you must first elevate the story and orient your vision around the customer and how you will positively impact their lives, job performance, and careers. Creating this, believing it, and owning it is critical for success. Your team needs to share this passion and share it consistently. At Mercury Interactive, we marketed software testing tools to QA managers, and it was roughly on-par with walking on broken glass in terms of career satisfaction. This was because we were in a crowded market with little competitive differentiation, and deals were won when a sales team better executed against competitors.
The team realized that there was a bigger calling, and created a new go-to-market strategy based on a customer-facing vision called “BTO”. This was short for Business Technology Optimization and is best described as a mindset, methodology, and best practice. If customers bought into BTO, they could get the best performance out of their own IT infrastructure with minimal investment. Mercury Interactive’s products were the underlying technology to make it all happen. Our strategy worked because we shifted the dynamic away from our products to a consistent, “customer-first” vision of how we could make them a hero within their company by gaining enabling more computing capacity while spending less money on complex infrastructure. CIO’s, CFO’s and even boards of directors became intrigued and wanted to hear how BTO could help transform their companies. We successfully pivoted from outbound marketing of features to techies to fielding inbound inquiries from C-Level executives who wanted to understand how BTO could help them. This transformation happened without any new features or changes to our products.
The key was shifting focus away from our technology into a compelling vision-oriented around the positive change that we could create for our customers. We stuck to the vision and kept repeating it until we became recognized as the clear market leader. Mercury Interactive was acquired by HP for $4.6B; without BTO, that outcome would have been very different.
Lesson #2: Can you Aim Higher?
When I first joined Cybersecurity company Tripwire, the company had innovative products but solved a problem for buyers with limited urgency and budget. We detected configuration changes for server administrators — yawn. As a result, growth was slow and the future was uncertain. We took a step back and realized that this same technology could also generate proof of compliance required for the recurring IT audits CISO’s and companies faced. We provided the report to “get the auditor” off their back and make a painful problem vanish. By strategically adjusting our go-to-market, we created a major new market opportunity and significantly expanded our TAM. We called this new capability Configuration Assessment (which later evolved into “compliance automation”). Tripwire’s growth was the result of this strategic market shift, and of course, an amazing team who knew how to execute. We filed our S1 to go public, but were acquired by Private Equity firm Thoma Bravo just days before our IPO
Lesson #3: Become a storyteller
It is exceedingly hard for companies to become great at storytelling. Much like the “telephone game” we played as kids, embracing a consistent message across an entire team is very hard. For your company to effectively create a category, you must not only have the vision to create the category itself, and the story to support it, but also have the ability to consistently tell that story to the market, industry analysts, and your customers. To do so, several elements are required:
1. You must believe your story. It needs to be something that evokes passion, something you are 100% behind, and is the reason you want to come to work. If you don’t believe your story, others will sense it and will not follow you.
2. You must be able to write it down – so your entire team can understand and embrace the story. This needs to capture the imagination of readers and hold their interest. You need to be able to succinctly communicate the story both within the company and outside.
3. You must be able to tune your story for your audience. For example, if you are explaining the vision behind your category to an investor, you must be able to adapt the story so they will understand why investing in your company is beneficial to them. If you tell the story to your engineering team, you will need to get them excited and bring them on board with the vision behind the category to inspire and guide them to develop the products required to execute the strategy.
4. You must also have the patience to stick with the message. It will take time for your own team, and especially for the market to notice, understand and embrace your message. You will need to expect some loss of predictability in your business as you learn to go-to-market with your new message; stick with it and don’t give up, especially when challenged by impatient investors.
Lesson #4: consider the “Micro-category”
Creating a new category does not need to be a risky, all-capital-consuming, “bet the
business” decision. At RiskIQ, we had three great products, but each was so different that our customers, investors, and even our own team struggled to fully understand and explain the value the company provided. We conceived the idea to uplevel our products into what I call “a micro category”. Instead of inventing something entirely new, we used a familiar designation to define a new “sub category” within the market.
The industry term selected was known as “Attack Surface”, which indicates where a company is vulnerable for a cyber attack. While we did not invent the term, the innovation was to claim this as our space, and align our products behind a more cohesive go-to-market within this new category. In doing so, we also proudly declared RiskIQ the “World Leader in Attack Surface Management”. Beyond claiming this bold category as our own, as one of the largest players in the market, we began to reinforce our leadership with customer testimonials, press releases, and consistently repeated the vision externally. The bottom line – if you don’t act like a leader, the market will never believe that you are.
One word is key to success with this strategy: FOCUS! Keep your eye on one thing and stick with it. We trained the entire company to shift away from talking about products, toward educating potential customers, analysts, and even our investors about their own attack surface, and why it was so important to manage it. It took time and required patience to create a repeatable story and sales motion, but we evolved from pushing products and their features into a genuine market thought leader who helped the market better understand that they could become more secure by actively managing their attack surface using the very same products we had been selling for years. A complex go-to-market was simplified and made more successful by creating a micro-category and defining – among other things – our own methodology and a simple circle diagram we all used to tell the story. Today, a simple Google search of “Attack Surface Management” shows over 15 public and private companies have followed RiskIQ and are positioning themselves as a solution for Attack Surface Management. Imitation – as they say – is the greatest form of flattery. Beyond the flattery, you will need competitors to adopt and align with your category as a true category does not consist of one company.
In conclusion, there are few professional experiences as exhilarating and inspiring as creating a new market category. It will take time, and requires conviction, along with a healthy dose of patience, but there is no greater satisfaction than customers telling you they can not imagine doing their jobs without your product, or that it has changed their lives for the better. Beyond personally rewarding, creating a new category can cement a leadership position for you and your company as well.
When you find yourself in a heated competitive battle or struggling to gain market traction, think about these lessons and consider ways you can take a different approach. Instead of another new feature, or working nights and weekends to “one-up” your closest competitor, think exponentially. Look through the lens of your customer, and how you can help them. How can you change the game in your market? Are there bigger problems you can solve with the same products? In what ways you can elevate your go-to-market? How can you turn your product story into a compelling market vision? You don’t need to take excessive risks, attempt to create the next “Q-tip” or change your entire company strategy. Think about ways you can creatively position yourself, become a visionary, tell a story that people want to hear, and – most important – set yourself apart.
This is part of a series of articles from High Tide Advisors on improving your go-to-market. You may also want to check out: Do You REALLY Have Product-Market Fit? and Is Your Go-To-Market Failing? I’d love to hear your thoughts on this article, answer any questions, or be a sounding board for your ideas. You can reach me at firstname.lastname@example.org.