How you know a new category is forming
The signals of category success are often increased competition and decreased differentiation.
As we’ve said in previous articles, category creation is about positioning yourself as a solution to an entirely different problem instead of a better version of what already exists. It’s about targeting a different, bigger market than the existing companies so that you can establish yourself as the leader in a huge, growing new industry. Not surprisingly it’s become a go-to strategy for new companies who need to convince investors that they are worth backing.
But where it starts to become a bit more interesting is when you look at the signals that a new category is actually being created. And here you start to see things that feel a lot less attractive to strategists and investors.
One study published in MIT Sloan looked at hundreds of new categories and saw that new, growing categories see increased competition. Counterintuitively they saw that increased competition didn’t make companies weaker in new categories, but it actually spurred more innovation and led to the building of category legitimacy, channels, infrastructure and marketing efficiency that benefitted new category creators and accelerated the development of the category overall.
Another study published recently in HBR showed that early category builders, facing increased competition, were more successful when they spent less time on differentiation and more time on parallel play. Watching and learning from the others in the category to see which strategies developed faster to see where to focus their efforts. Again this feels counterintuitive and is often very contradictory to the advice early-stage category creators are given.
We’re seeing a lot of the same dynamics within new categories that we are invested in like carbon and biotech. There’s increasing competition in all areas of the industry and many companies are pursuing similar paths towards their goals.
In our view, these dynamics aren’t signals that these categories are unhealthy and won’t deliver returns. Quite the opposite - they’re exactly what you’d would hope to see in categories that are healthy, growing and on their way to developing fully.
If you’re interested in branded category creation for your early-stage company reach out to us at hello@demosfunds.io