Have you ever come across a product or service that seems so novel and innovative that it creates an entirely new category? That’s category creation in a nutshell. But building a successful new market from scratch is easier said than done.

In this post, we’ll explore what category creation entails, why it matters, and how to become a category creator.

Let’s dive in!

Defining Category Creation

So what exactly is category creation? Here are a few definitions from leading experts:

Al Ramadan, CEO of Playground Global:

“Category creation is the act of making a market where there was none before.”

Andrew Chen, General Partner at Andreessen Horowitz:

“Building a category means founding a company that defines a new product category, with that company becoming synonymous with the category.”

David Sacks, Co-founder and Partner at Craft Ventures:

“Category creation is about developing a product that is 10x better than the status quo. It’s not a new spin on existing technology but rather a quantum leap forward that kicks off a new wave of innovation.”

The common thread is that category creation involves developing a product or service that is so different and superior, it doesn’t fit into existing boxes. The innovation is so compelling, it spawns a new market.

Think about how Netflix created the streaming category and Ring created the video doorbell category. Before those companies came along, those product types simply didn’t exist in a meaningful way. But their novel offerings were so disruptive, that they grew new multibillion-dollar markets from scratch.

Why Category Creation Matters

Why does category creation matter so much? Here are three key reasons:

1. First Mover Advantage

Being the first to establish a new category allows you to stake your claim to the market. You can set the gold standard on product features, branding, pricing, and more. This makes it harder for later entrants to compete on your turf.

We saw this with Uber establishing ridesharing and Tesla with electric vehicles. Their early leadership in those spaces has given them durable advantages that later challengers struggle to match.

2. Control of Resources

By birthing a new category, you can lock in key assets before others. For example, Ring quickly partnered with top retailers and Neighbors by Ring became the dominant social network for home security. Those supplier partnerships and data network effects will be hard for Ring competitors to replicate.

3. Mindshare

Creating a new product that becomes synonymous with the category you invented is powerful. Your brand becomes strongly linked to the innovation in customers’ minds.

For example, “to Google” something is part of our shared vocabulary now. The brand became fused to the search function they pioneered. This mindshare can create a tribal following and advocacy that competitors struggle to challenge.

In a nutshell, category creators seize first-mover advantage, control key resources, and own the customer mindshare. Those enviable rewards inspire many startups to pursue this strategy.

How is Category Creation Different from a Blue Ocean Strategy?

Category creation is related to, but distinct from, blue ocean strategy. A blue ocean represents an uncontested market space with no competitors. This is created by making rivals irrelevant through a sufficiently differentiated offering.

However, creating a blue ocean does not necessarily establish a new category. For example, Cirque du Soleil invented a new circus experience without peers. But it did not create an entirely new market the way Uber did.

Category creation moves beyond strategic positioning or differentiation within a known segment. Instead, it invents a new segment entirely that permanently shifts market boundaries.

This distinction is crucial. A blue ocean gives you breathing room from current competitors. But a new category puts you in pole position to lead a market of the future, one that you design from scratch based on a breakthrough innovation.

Characteristics of Category Creators

Building a new category end-to-end requires certain characteristics and conditions:

• Breakthrough innovation: Category creators aren’t iterating incrementally. They rethink the problem from scratch and make a 10x leap over the status quo.
• Visionary founders: Those spearheading category creation are often iconoclastic thinkers who operate from first principles. They have the creativity and conviction to persist despite skeptics.
• Clean slate: Category creators build their whole business around the new offering, rather than being constrained by legacy. The product, positioning, customer experience, and operations all revolve around disruptive innovation.
• Capital intensity: Categories require major upfront investment to spawn a new value chain. Deep pockets and long investment horizons are often needed to achieve escape velocity.
• Network effects: Categories thrive when the user base or content expands. Category creators leverage these data and demand-side economies of scale to fuel growth.
• Zero-to-one innovation: Category creation is about going from zero to one, from no market to spawning a new one. This makes it far more difficult than going from one to n through optimization and iteration.

Category creators are playing in hard mode in the innovation game. But those able to master this framework have a shot at building iconic, multigenerational companies.

Stages of Category Creation

Bringing a new market segment into existence doesn’t happen overnight. It requires moving through several stages:

1. Product Breakthrough

The first step is developing a product or service that is 10x better than existing alternatives. This quantum leap could be based on technology innovation, novel use case, superior UX, or new business model. The key is that it’s enabling something previously impossible or cost-prohibitive.

2. Market Education

Next, category creators have to invest heavily in consumer education and evangelism. Adoption of new paradigms requires changing buyer habits and mindsets. Smart marketing and influencer engagement are crucial here.

3. Overcoming Incumbents

The initial beachhead for a new category often comes from non-consumers. But to reach mainstream adoption, founders must convince consumers to switch from incumbent solutions. This challenge often requires pushing the innovation curve even further.

4. Building out the Ecosystem

To scale successfully over the long term, founders need to build out their category ecosystem. This means fostering a rich community around the product, and attracting partners, developers, content creators, and influencers into the orbit of their new market.

5. Continued Innovation

Categories never stay static — they need to continue evolving to maintain their leadership position. Founders who rest on their laurels often open the door for challengers. Continued innovation is key to retaining first-mover status over the long haul.

The playbook that birthed a category won’t be sufficient to maintain dominance decades later. Building robust feedback loops with customers and making ongoing R&D investments is crucial to staying ahead of the game.

Case Studies of Category Creators

Let’s look at two iconic category creators: Airbnb and Peloton. We’ll analyze how they executed the category creation playbook.

Airbnb

• Product breakthrough: Airbnb pioneered an online marketplace facilitating short-term home rentals by local hosts. This made lodging more convenient, personalized, and affordable vs hotels.
• Market education: Host boot camps educated homeowners on hosting and helped them photograph properties. Airbnb also promoted unique local experiences travelers could book.
• Overcoming incumbents: Airbnb expanded from spare rooms and couches to entire homes. This lets them compete for hotel and vacation rental demand.
• Building the ecosystem: Airbnb encouraged hosts to provide local guides, experiences, and recommendations. This cemented them as go-to travel geniuses vs just homeowners.
• Continued innovation: Features like verified IDs, reviews, insurance, and AirCover improved trust and safety. Luxury tiers and partnerships expanded their addressable market.

Airbnb’s consistent innovation has allowed it to maintain dominance against rivals like Vrbo.

Peloton

• Product breakthrough: Peloton made spin classes accessible from home through networked stationary bikes and tiered digital subscriptions. This beat alternatives on convenience, content library, social engagement, and flexibility.
• Market education: Peloton engaged fitness influencers and riders to spread awareness of a novel at-home cycling experience previously impossible.
• Overcoming incumbents: While initially focused on spin fans, Peloton expanded into every fitness vertical from boot camp to meditation to steal time from gyms and fitness studios.
• Building the ecosystem: Peloton fostered an engaged user community and partnered with different instructors, artists, and brands to expand its content ecosystem.
• Continued innovation: Features like gamification, Apple Watch integration, personalized class recommendations, and real-time leaderboards made workouts more engaging over time.

Peloton has maintained its category leadership through best-in-class content and platform innovation.

These examples illustrate how Airbnb and Peloton methodically executed the category creation playbook step-by-step to birth and dominate their new segments.

Critical Challenges of Category Creation

Category creation is not for the faint of heart. Here are four thorny challenges leaders face when building new markets:

1. Pioneer Gaps

Pioneer gaps represent holes in the ecosystem for innovations so cutting-edge, that the supporting infrastructure doesn’t exist yet. For example, early electric vehicles struggled to scale before charging networks were built out.

2. The Chicken or the Egg

Category creators face a dilemma — to attract users they need content/products, but to have offerings, they need users. Solving this chicken or egg problem requires a leap of faith to build supply before it’s guaranteed people will show up.

3. Ingrained User Habits

Consumers are creatures of habit. Their ingrained behaviors and lack of awareness make it hard to get adoption of new paradigms. Category creators need to invest heavily in education and persuasion.

4. Skeptical Stakeholders

Category creation is unproven by definition. Internally, it can be hard to get buy-in. Externally, investors and partners may be dismissive. Founders need conviction and storytelling skills to bring others along.

But while tricky, these challenges are not insurmountable. Let’s look at strategies founders can use to tackle them head-on.

How to Overcome Category Creation Obstacles

Here are proven techniques category kingpins have used to defeat the odds:

• Solve small problems first: Find niche use cases early adopters desperately want to be solved as beachheads to get your foot in the door and build outward.
• Subsidize supply: Temporarily inflate content/supply with artificial incentives if needed to reach critical mass and unlock organic network effects.
• Leverage analogies: Compare your novel solution to existing paradigms customers already understand to fast-track understanding and adoption.
• Partner aggressively: Ally with complementors and champions to validate your space and strengthen your ecosystem.
• Overinvest in education: Flood zone with content showcasing your value proposition and vision to bring the market with you.
• Start from first principles: Block out assumptions and incumbent bias and return to basic truths to develop breakthroughs and business models.

Willingness to subsidize supply, partner creatively, and educate tirelessly are hallmarks of category-leading hustle.

Asking the Big Questions

We’ve covered a lot of ground explaining category creation strategy, common stages, key challenges, and how leaders overcome obstacles.

Let’s conclude with some deeper questions founders should ponder before endeavoring to build a new market:

• Does this solve a critical consumer problem in a 10x better way?
• Am I ready to make the sacrifices required to beat the odds of failure?
• Is my solution fundamentally constrained by existing infrastructure and business models?
• Does this tap into a mass job that consumers want done for which no category exists today?
• Am I playing chess when others play checkers?

Category creation is not about winning small, incremental gains within existing arenas. It requires asking big, disruptive questions — and having the guts, grit, resources, and resilience to pursue those quantum leaps.

For the rare pioneers who can check those boxes, building a new market unlocks generational opportunities for impact and upside.

Those are the intrepid, persistent trailblazers who rewrite the rules and expand the playing field for everyone else. They light up new horizons that never existed previously. And their disruptive inventions can improve the lives of millions.

That’s the transformative potential of category creation. And while the road is long and hard, the destination is well worth the arduous journey.

So are you ready to take the leap from zero to one and try your hand at category creation? It’s uncharted territory — but that’s exactly what makes it so rewarding.