Below are some highlights from the transcript of a podcast interview we did with Christopher Lochhead, often referred to as godfather of category design. Among other things Christopher has written several books on the topic of category design, consulted extensively on the topic, and these days he’s focusing on trying to make a difference at scale through podcasting and writing. Dive into the deep end of the category design pool by reading the content below or listening to the full audio version here.
Jakob:
For people who haven't come across you, Christopher, maybe you can just start off by telling us a little bit briefly about your background and what you do?
Christopher:
I was born and raised in the Montreal area of Canada. And and I sold a a boutique consultancy that I had in Toronto to a US-based software company. I went on to become the Chief Marketing Officer of three publicly traded tech companies. And when we sold Mercury to Hewlett Packard for $5 billion in 2006, HP became my favorite company of all time, and I retired as an operating guy and then I took a whole bunch of time off.
With two buddies, I started a boutique called consultancy called Play Biggerr. Ultimately, we wrote the book [of the same name]. And then after the book came out, which now is five years ago — I retired as an advisor and a consultant and today I'm primarily a writer, focused on this thing we call Category Pirates. It's a newsletter, and it's also an ongoing series of books and audio books on Amazon. We have about 30 of them up already on different topics.
And so mostly today I'm focused on trying to make a difference at scale through writing and through podcasting. And what I believe, Jakob, is: if you're lucky enough to make it to the top of a mountain, throw down a f*cking rope. And so I'm trying to throw down a rope.
“[If] you're lucky enough to make it to the top of a mountain, throw down a f*cking rope.”
Jakob:
Maybe we should just start out describing what category design is. Why is it important to work with categories and ultimately, hopefully, become a leader in the category, aka the discipline of category design?
Christopher:
Category design is a management discipline, so it spans much more than just marketing. And it is the discipline of being able to design or create your own market category, which you can then become the leader or category cleaner category king in.
The first “aha” is realizing that most of what we get taught about entrepreneurship and about marketing is actually bullshit. And one of the biggest sources is a bullshit is an undeclared, undiscussed, unconsidered, un-dialogue about context thinking or framework for business. That thinking — that lens — for business goes like this: What you need to be successful is you need to compete.
So, the first thing is we get taught to compete in an existing market. And the second thing that we get taught is to build a better product. See, Jakob, if we could just give the world a demo of our product, if we could just get people to see that our product is better than their product, we win. Right?
So there's these two big cults in business. One’s the brand cult – “we win by competing by building a better brand.” And the other is “we win by competing with a better product.”
And here's the “aha”: When you do primary data science research to see what happens, what you realize is everything I just said, everything we get taught about that stuff is completely wrong. It is not what the greats did. It's not what Henry Ford did. It's not what Steve Jobs did. It's not what Sara Blakely, the founder of Spanx, did. It's not what any of those people did.
“[Most] of what we get taught about entrepreneurship and about marketing is actually bullshit”.
“So, smart ass, what did they do?” Well, they designed and dominated a whole new category.
Most marketers, Jakob, as you know, study market share. And market share is an important thing to look at. However, up until we did the research, nobody had ever studied market cap in the context of the following question: what percentage of total value that’s created in a given market category goes to the leader?
We did a study for my first book where we looked at every venture-backed technology company founded in the US from 2000 to 2015. We gathered all of that data, and that's the question that we asked, and here's the shocking result. On average, one company earns 76% of the total value as measured by valuation and market cap in a category.
So the first “aha” here is the company that designs the space is best positioned to dominate it. The second “aha” is one of the other pieces of bullshit that we get taught: “oh [the category is] going to be large, it’s going to be huge, there's gonna be room for lots of people.”
Well, that's not true. Google has no competitor. And in space after space after space, there's no competitor. One company earns the vast majority of the economics — and if you are a founder or an executive or even just a good participant in that company, a good employee in that company, you're going to have a very powerful career. And if you're not, you are going to be like a rat on the Titanic.
“On average, one company earns 76% of the total value (…) in a category.”
Jakob:
That is a great explanation of category, design, wow. As a CMO, or CEO, you're hired into existing company and the company's competing in a crowded legacy market, you know, you’re one out of 25 providers of software doing something. Where do you start and what do you think you should start doing when you come into that role, you know, and realize this is a really tight market where I'm in?
Christopher:
Yeah, great question. The number one objective of a CMO, of a CEO, frankly of the executive suite and the board of investors, is one thing: “How do we design and dominate a giant category that matters?” Because if it's a giant category that matters then the 76% will be a very big number. So whatever you're doing in the company, we believe that's the lens to look at it through. And the way we sort of simplify this is to talk about what we call the magic triangle. So at a very high level as a CEO, as a CMO, there's three things we're trying to get right: the right product, the right company — business model, culture, all that good stuff to be able to scale and execute — and the right category.
And if we get all three of those things right, we become the category queen or king. If we don't, we lose. And what most people do is they focus on two of those three things. They focus hard, particularly in our industry, on product, because we believe in our industry that the best product wins, like we believe in f*cking oxygen. It's never even discussed.
And can I tell you a quick story about this, Jakob?
Jakob:
Absolutely.
Christopher:
So, I live here in beautiful Santa Cruz, California. And I live right on the ocean. There are many things that are wonderful about living near the ocean. One of them is watching pelicans hunt. And, you know, pelicans are these giant dinosaurs in the sky, right. They have these incredible wingspans, and they tend to flock together, and they’re incredible flying ancient animals.
And when one of them sees a fish from above, they literally do a 180 and dive straight into the water. There's this big splash. And then you can see in their mouths under their chins, you can literally see the fish in there. And then they swallow the fish and keep going. And when one of them finds a school of fish — if there's eight or 10 or 12 of them flying together — they're literally like watching dive bombing planes.
Now imagine you're a fish. Your whole life, all there is is water. You live in water, your parents live in water, your uncles and aunts live in water, your siblings live in water and you guys hang out and you live in water. And the fact that you live in water is a given and because you're in water your entire life, and you've never been outside of water, you don't even know there's a thing called outside of water. There's just water.
And then there are two seconds in your life where you learn there's a whole other way, there's a whole other world. One is when the pelican gets you and the next is when the pelican swallows you and you're done. So for two seconds in the fish’s life, the fish realizes there's this whole other domain.
So what happens for entrepreneurs and marketers is they spend their whole life believing that to get the deal you’ve got to generate leads. So we're playing a game called demand capture. And the way we do demand capture is we build a great brand and a great product. And if we do those things, we will capture existing demand and we will beat our competition because we have a better brand and a better product.
And then all of a sudden a pelican shows up. And that happens over and over and over again.
So, the fundamental question to ask is what makes us different, not better. And then why does that difference matter. And if you build your business around that difference, you make that your True North. You will be different. You will become known for a category that you own and you will separate yourself in a very meaningful way.
And ultimately that is the objective of category design; to be the company that breaks and takes new ground. That establishes a vision for the future. That is different. That solves a problem that matters in a new and different way. And as a result, customers flock to you. The market comes to you. And if you get that right? Pow! You get to be Uber. You get to be Google. And if you don't get that right? You get to fight for 24% of the opportunity.
“[The] fundamental question to ask is what makes us different, not better. And then why does that difference matter. And if you build your business around that difference, you make that your True North.”
Jakob:
Where do you start looking for different? Where do you start with this process? Is it on the product, the company, or the market or the customer? You know, where do you start finding different ideas?
Christopher:
Start with the problem. Not the product, not the company, not even necessarily the customer. Focus on the problem that you want to solve. And it turns out, there's two kinds of problems.
There's a problem that we know we have that gets meaningfully reimagined for some reason. And in our world, that's often because of technology (….)
Einstein famously said “If I was given an hour to solve a problem, I would spend 55 minutes on the problem and five minutes on the solution”. And whether it's from a company building perspective, a product building perspective, or a marketing/growth perspective - we all go to the solution. We assume the problem.
Most companies most entrepreneurs, most marketers, spend very little f*cking time thinking about the problem, reimagining the problem, describing the problem, evangelizing the problem. We go to the solution and we forget the following: to step back for a second listen to the words - solution. You can't want or buy a solution unless you have a f*cking problem.
So legendary entrepreneurs and marketers fall in love with the problem. And they evangelize the problem, because the bigger and the more urgent and the more strategic the problem, the more time money and energy people will invest in solving that problem. You can't buy a solution unless you identify with a problem.
Jakob:
When do you see companies get stuck or struggle the most? even though the category design of the problem they're focusing on is really good candidate and probably should work.
Christopher:
It's a great question. So there's there's sort of two places in particular at the beginning. It's hard to jump off the high dive of the diving board if you can't see the pool, right? So there is a level of conviction and courage that one must have to take this leap. And there is even a higher level of commitment and courage and feeling like a missionary to stay with it in the face of no results, in the face of a world that says you're insane (….)
However, that said, we just recently had a PhD on my podcast Follow Your Different whose name is Ron Friedman. And he's written a great book I highly, highly recommend to marketers and entrepreneurs called Decoding Greatness. And in a lot of ways what his book is about is de-risking a big move like this.
So for example, we can learn from others. There's a lot of books in this space that have come out in the last few years that help in particular, SaaS tech entrepreneurs. So I would go and educate myself; “What did these legends who came before me do? How do I learn from their frameworks, their templates, their approaches? And then how do I innovate off of them myself?”
(…) We live in a time where you can A/B test everything. Now, I'm not saying that you should only build what the market tells you to build. But what I am saying is, once you get clear about your vision, your point of view around solving this problem there's a lot of ways to communicate that. And the way you frame, name and claim things really matters. Well today on the internet for a very small amount of money, we can test things. So we can take the same idea and if we communicate it one way and get one result we communicate in a different way, maybe get a very different result (….)
So I would argue to you that context is more important than content, even if that content is a software product that you're trying to market and sell. And so my point on the A/B testing is not so much to ask the market, “What should we build or do?” but to test different frames of your idea, different uses of language around the problem, the vision for the future and point of view and therefore solution? We can test that shit today for hundreds of dollars on the internet.
On one hand, we summon the courage. We have the vision; we get passionate about the problem and making a difference for people around this problem. And then, as we start building the product, or launching our marketing campaign, or whatever it is, we can do some very thoughtful testing. That lets us know what resonates and doesn't resonate.
(…) You know, if you've ever said “Oh, I never thought about it that way”, someone changed your context. That's what category design fundamentally is about. And so on one hand, we have to have courage of our conviction. We have to be a missionary with a point of view around a problem. But we can test to see where there might be water in the pool for A/B testing and de-risk it and we should and we can like never before. And so it's this combination of big vision, big commitment. And listen, we don't have to be crazy. Let's try and test this thing, and let's see what comes back.
Christopher:
Can I add one more thing before we wrap it up?
Jakob:
Yes, please.
Christopher:
Okay. From the bottom of my heart; now is the greatest time in history to be a technology entrepreneur. We have never had the acceleration of new technologies and new categories like we have now. It has never been cheaper to be able to bring new innovations to the world. And what I would say to you, as a result of COVID is the receptivity to different has never been higher than it is right now.
And so my point in sharing that is now's the time for legendary marketing. Now's the time for legendary entrepreneurship. Now's the time for people who care about designing a different future to make a difference for others. Now is the time to step forward. It's the greatest time in history, and the future needs you.
“[...] now is the greatest time in history to be a technology entrepreneur”
And so for those of us who are in this industry, who love technology, who love innovation, who love bringing new things to the world, now is our time and the receptivity to the new has never been higher. And I would argue to you that the world has never needed legendary entrepreneurs and new innovative companies more because that's where all the job growth comes from. That's where all the breakthroughs in humanity come from. The world needs people like that more now than ever. And so I would just encourage everybody in your sphere of influence, all of your listeners and all of the tech entrepreneurs in Sweden, now's the time. So please stand up. Go for it. And let's create a different future of our choosing.
“[...] now's the time. So please stand up. Go for it. And let's create a different future of our choosing”
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If you would like to learn more about Christopher and his different projects, you can follow him on Twitter or LinkedIn, or check out his website here. You can also listen to the full podcast episode here.
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