Category Strategy
One of the biggest strategic positioning decisions for a startup is choosing your category entry point: Do you position your product as part of an existing market category (and try to differentiate within it), or do you attempt to create an entirely new category that you can define and dominate? This choice has profound implications for your marketing narrative, competitive frame of reference, and even the resources you’ll need. Let’s explore both paths and a middle option (re-segmenting a category), with examples.
Option 1: Position in an Existing Category (Differentiation)
This is the more common path. It means you frame your product as a better alternative within a well-understood category that already exists. The upside: you tap into existing customer awareness and budgets. You don’t have to educate the market on what your product is – you just convince them yours is the superior choice. Especially for startups with limited funding, this approach can be faster and lower risk. You leverage the fact that customers are already looking for solutions like yours; they just need to know why to pick you.
If you choose this route, differentiation is your best friend. You must pinpoint what makes your approach better than the incumbents. This could be a 10x functional improvement, a niche focus that others ignore, a pricing disruption, etc. For example, Zoom entered the crowded video conferencing market (dominated by WebEx, Skype, etc.) – not a new category at all. Zoom succeeded by positioning on superior performance and simplicity: it was “the simplest, most reliable option” for virtual meetings. By emphasizing ease of use and high-quality calls, Zoom carved out a winning differentiation in an existing category (and indeed became synonymous with it). Another example: Snowflake didn’t invent “data warehousing” – it entered that category but differentiated as a cloud-native, scalable warehouse, solving old pain points of traditional data warehousing. This piggyback strategy meant customers already believed they needed a data warehouse; Snowflake just convinced them it had a much better one. The key is to frame your unique strengths as the new selection criteria for buyers. As Kellogg advises, a great tactic is to publish content (like a buyer’s guide or RFP template) that turns your differentiators into must-have features, subtly disadvantaging competitors. In other words, you set the agenda in the category by defining what “good” looks like – naturally highlighting where you excel.
However, competing in an existing category also means you’re fighting noise and comparisons. You must be ready to directly address “Why not use Competitor X?” in every pitch. It’s crucial to research how you stack up and perhaps even re-segment the market to play where competitors are weak. One approach is vertical or niche focus: rather than a broad “CRM for everyone,” you might position as “CRM for healthcare providers” – owning a sub-category where you can lead. This kind of specialization (vertical or horizontal) is a powerful differentiator in itself. It shows you do one thing extremely well for a specific customer, making you the obvious choice for that segment.
Option 2: Create a New Category (Category Creation)
This is the bolder, higher-risk, potentially higher-reward play. Category creation means you position your product not as a better X, but as a new kind of solution addressing a problem in a novel way. The benefit: if you succeed, you can define the category on your terms and be seen as the market leader (the “category king”). Successful new categories often lead to outsized growth and market cap for the pioneer. For example, Gainsight famously created the “Customer Success” software category about a decade ago. In the early 2010s, companies weren’t actively looking for “customer success platforms” – it wasn’t a known category. Gainsight positioned itself as the champion of a new discipline (Customer Success management) enabled by software. They evangelized the role of Customer Success Manager and the need for tools to manage renewals and churn. It was a heavy lift – they invested in educating the market with conferences, thought leadership, even defining job titles. The payoff? By owning this category narrative, Gainsight grew its business over 1000% and became synonymous with Customer Success software as the category exploded in popularity. Today, hundreds of companies have Customer Success teams – a need Gainsight helped create.
Other examples of category creation include Salesforce in its early days coining “No Software” and promoting cloud CRM when on-premise was the norm, or more recently, Gong.io re-framing the crowded sales call recording space into “Revenue Intelligence,” a broader new category. In these cases, the startups weren’t just selling a product – they were selling a vision of a new way to work or a new business priority. Category creators often find a “higher-level problem” that existing categories don’t address. For instance, Gong saw that simply recording calls (conversation intelligence) was too narrow; by labeling the category “Revenue Intelligence,” they positioned their solution as helping drive revenue, a strategic priority for execs – thereby creating a new arena where they could lead.
The Downsides of Category Creation
The downsides of category creation are significant. First, you must invest heavily in market education. Customers don’t have budget set aside for this new thing yet because they may not even realize they have the problem. You’ll spend on thought leadership, analyst relations (to convince Gartner/Forrester to officially recognize the category), and community building. It’s a longer road to payoff, and riskier. As many pioneers have discovered, being “too early” or failing to define the category clearly can lead to startup doom.
Studies show almost half of first movers fail, and the winners often are fast followers who refine the category. If you tell a completely novel story, and it doesn’t resonate, you might confuse customers or be met with skepticism (“sounds nice, but I don’t have the budget for that”).
Only create a new category if you truly have a breakthrough, and if competing in an established category would severely undervalue your solution. If you’re merely a slight improvement over an existing solution, creating a new category is likely to fall flat. You’ll spend all your time explaining what your product is rather than why it’s better. Category creation should be reserved for when you’re solving a fundamentally new problem or an old problem in a fundamentally new way (and you’re ready to play the long game).
Option 3: Re-segmentation (Carving a Niche or Reframing)
Often the best approach is a hybrid: you don’t claim an entirely new category from scratch, but you also don’t go head-to-head with incumbents on their terms. Instead, you re-segment or reframe an existing category. This could mean focusing on a specific use-case or audience (like the vertical focus example earlier), or introducing a new sub-category. Andy Cunningham’s framework (the 5 Cs of positioning) suggests looking at Context and Competition to find a “white space”. For instance, Airbnb didn’t call itself a hotel or create a weird category name; they re-segmented lodging by reframing it as a community marketplace – effectively creating a sub-category of “short-term rental marketplace” within travel, which was novel but still related to the existing concept of lodging. In B2B, a company might position as “the first X for SMBs” – taking a category that existed for enterprise and re-segmenting it to a new audience who was underserved. Or you might combine elements of categories (“we’re at the intersection of project management and knowledge management”) to stake new ground.
Re-segmentation can be powerful because it allows you to leverage some existing awareness while still claiming uniqueness. The Mucker Capital team describes it well: creating a new category is challenging, re-segmenting is about reframing customer needs within an existing category, often yielding a unique angle (they cite Airbnb as an example in B2C). In SaaS, think of how Notion re-segmented collaboration software by combining note-taking, wikis, and tasks – not an entirely unknown concept, but they framed it as an “all-in-one workspace” category of its own, giving them a differentiated story.
How to decide?
It boils down to your product and market context:
- If you’re entering a mature market where the problem and category are well-defined, and you have a distinctive improvement, leaning on the existing category (Option 1) and differentiating may be faster. You’ll want to emphasize why we’re better at X and possibly target a segment the big players overlook.
- If you truly have a novel solution or you find that describing it in terms of an old category doesn’t do it justice (or pigeonholes you among too many competitors), you might consider a category creation play – but be prepared to commit to lots of evangelism. A good test is to try explaining your product in terms of an existing category: if you find yourself saying “well, it’s kind of like A, but also does B, and really there’s nothing out there doing both,” you may have a case for carving a new category.
- Also assess market dynamics and demand: if customers already search for or understand a category for what you do, don’t stray too far from it. If there’s no existing solution to the problem you solve (unmet need), that hints you might need to define the category yourself.
- Consider resources and timing: category creation requires “thought leadership stamina” – you might need to run conferences, generate content, possibly form a community or network effect. If you lack funding or if the market timing isn’t ripe (customers don’t feel the problem acutely yet), it could be an expensive education campaign. On the flip side, if you do crack category creation, you could enjoy a home-field advantage as the recognized leader (until others try to join your category).
Best Practices
If you decide to create a category, focus on being the thought leader. Define the problem in big terms and work to create a movement around it (often involving a broader “why” or mission).
For example, Gainsight didn’t just sell software, they championed “customer success” as a vital business practice. They published content on how to do customer success, held an annual Customer Success conference (Pulse), and got people job titles in that field.
Category creation is as much about promoting an idea as it is about your product. A rule of thumb: find a higher-level need that people truly care about, and position your product as the solution to that. “Find a higher love than your product,” as one Gainsight CMO said, meaning tie it to a bigger mission or outcome customers aspire to.
If you go with an existing category, invest in clearly mapping out competitors and their positioning, then deliberately differentiate your narrative. It can be helpful to create a simple matrix or chart: list key buying criteria customers consider, and ensure you introduce at least one new criterion that favors you. For example, if all project management tools brag about features, you might pivot the conversation to outcome or ROI, making ROI per dollar a criterion where you excel. This is how you prevent being a “me too.” And don’t be shy about naming competitors or alternatives in your messaging (at least internally or in sales decks) – you want your team to have a clear “Unlike Competitor X, we….” statement for each major competitor, so they can articulate the difference.
In summary, choosing your category strategy is about picking the battleground that gives you the best chance to win. There’s no one right answer for all; it’s about context. But whatever you choose, be consistent. If you decide you’re creating a new category, double down on that narrative in all channels (press, analysts, content) so the market starts hearing the new term over and over. If you’re positioning in an existing category, relentlessly hammer how you outperform the old guard and perhaps reframe a piece of the category to your advantage. Choose a space you can credibly win, whether it’s an existing category or one you build yourself.
Examples:
Slack in its early days could have called itself “enterprise chat software” (existing category: enterprise instant messaging), but instead Slack positioned itself as a new way to replace internal email. This effectively created a new category of team communication hubs. That bold positioning helped it stand out from mere “chat apps.”
Conversely, HubSpot in its start didn’t invent marketing software; it positioned within the marketing automation category but coined the term “inbound marketing” as a fresh twist. They owned “inbound marketing” as a concept (thought leadership) while still selling a familiar solution (marketing software). This is a great example of re-segmenting: they gave a name to a movement (inbound) which created pull for their existing-category product.
Whether you choose category creation or differentiation, **be deliberate **and take control of your category story early in your GTM journey.