Category Design: Create Demand vs. Capture Demand
Design your own market category instead of competing for a slice of someone else's.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 95%
Most founders make an unconscious decision to compete in an existing market with a 'better' product, unwittingly fighting for the scraps of demand someone else created. Category design is the opposite move: design a new market category by getting the world to agree with your definition of a problem, so that the category itself makes the product, brand, and company. The data shows category kings capture roughly two-thirds of a market's economics.
Origin
Christopher Lochhead is co-author of Play Bigger, Niche Down, and the Category Pirates newsletter, and is known as the godfather of category design. The 76% figure comes from an analysis he and collaborators did of every US venture-backed tech company from 2000-2015, peer-reviewed and published in Harvard Business Review.
Core principles
- 01The category makes the product, brand, and company — not the other way around
- 02One company on average earns ~76% of a tech category's total market value
- 03Competing means fighting for the ~24% of value left over for everyone else
- 04Nobody legendary got there by being the best-in-class competitor; they broke and took new ground
- 05'Category design' is preferred over 'category creation' because creation implies being first to ship a product with features, which it is not
How to run it
- 1
Notice the default decision you didn't know you made
Recognize that choosing to enter an existing market with a better product/service/brand is an unquestioned, undialogued decision. Making it consciously is the first step to opting out of it.
Pro tip Ask: am I trying to capture demand that already exists, or create demand that doesn't?
- 2
Choose create-demand over capture-demand
Decide explicitly whether you want to compete for 24% of an existing category or design your own where, if you execute, you earn two-thirds of the economics.
Watch out A 'zero-billion-dollar market' sounds insane but is exactly what you want — it means the category is yours to define.
- 3
Get the world to agree with your problem definition
Designing a market means getting a meaningful percentage of the world to agree with your definition of a problem set, which then leads to your definition of the solution set. The company that gets this to tip at scale wins.
- 4
Get the magic triangle right at the same time
Build product, company, and category as equally important and time them together. Category design is not pejorative to product — products fail precisely because they never got category-designed.
Watch out Don't treat category as marketing spin bolted onto a finished product; it has to be built alongside the product and company.
In the wild
A husband-and-wife factory team found bar soap 'disgusting' and reframed the problem from 'how do I wash my hands' to 'how do I wash my hands without a disgusting bar of soap,' creating the liquid soap category. Later they reframed again to 'how do I wash my hands in the absence of water,' creating hand sanitizer.
→ Gojo became the dominant liquid-soap dispenser (the logo on most restaurant/airport soap pumps) and, via Purell, the category king of hand sanitizer.
Lochhead's team studied every US venture-backed tech company from 2000-2015, asking what percentage of a category's total market cap goes to the leader versus everyone else — a question Stanford professors told them had never been answered.
→ On average one company earns 76% of the total value created in its category, proving category kings dominate the economics, not just market share.
Common mistakes
Confusing category creation with being first to ship
Product-oriented founders hear 'category creation' and think 'first to ship a product with X features.' Friendster and MySpace shipped social media before Facebook; GeoCities before them. Being first to ship is not owning the category.
Staying in your micro-niche after the mega-category emerges
Gong smartly picked a tight slice of the emerging RevOps space and dominated it, but then failed to expand and set the agenda for the whole category. Clari framed, claimed, and named the bigger category, leaving Gong stuck choosing between a diminishing niche or being a late Clari copycat.
Is it for you?
Best for
Founders and product leaders at the earliest stage deciding whether to enter an existing market or define a new one
Not ideal for
Product managers doing incremental improvement on a mature product with a large install base — that is legitimate work, but it is not category design
From the transcript
“the category makes the product. The category makes the brand. The category makes the company.”
“one company earns 2/3, 76% to be exact, of the total value created as measured by market cap and/or valuation.”
“do I want to compete for 24% of an existing market category”
“product, company, and category are equal in importance”
From the episode
How to become a category pirate
Christopher Lochhead (author of Play Bigger, Niche Down, Cat