| +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
The TeleChoice Take
+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
Although we understand the rationale for this belief, the sentiment that "category making
is dead" is over-simplified and misleading. Companies may make fatal mistakes if they
fail to understand the fundamental truths underlying the decision of whether or not to
"category make."
What Is Category Making?
First, what does it mean to make a new category? Companies will attempt to create a new
category when they believe their product is so unique that it is inappropriate to compare it
to existing products in existing categories and that trying to do so does not serve either
the potential customers or the company well.
This is a big statement and a big risk. Tremendous benefit can actually be gained by
comparing your products to existing, well-understood products (assuming you have a
good product that compares favorably with others). Other companies have already
invested significant time and marketing dollars to educate buyers on the value and
benefits of buying and using a certain type of product. If you can leverage another
company's investment to your benefit, you can focus your time, attention, and budget on
educating the market on how your product stands out from others in the category.
However, the benefits of category making can also be tremendous.
Not everyone has the opportunity to be a category maker, as it requires meeting two
fundamental criteria. (These are explained in much greater detail in our white paper
"Category Making in a Down Market," which you can download for free from
http://www.telechoice.com/inprint_whitepapers.htm.) First, a category-making product
must deliver an Order-of-Magnitude Improvement (OMI) along a dimension of value to the
buyers. Second, delivering this level of improvement requires a new product architecture,
which implies significant defensibility.
A Little Background
During the boom years of telecom, especially 1999 to 2000, a tremendous amount of
category making activity existed - although not all of it successful. This level of category
making activity was directly tied to the amount of money flowing into the telecom
industry.
On one side, investors were pouring money into new telecom service providers, and these
providers were spending that money to buy equipment to build their new networks. On the
other side, investors were pouring money into new startups building equipment for these
service providers. New companies were emerging every week and every category of
equipment was getting very crowded with "Me Too" and "Me Too Plus" players. It was
virtually impossible for a startup to stand out in these crowded fields. Clear differentiation
was difficult and it was impossible for buyers and influencers to keep track of all the
different players and the correct positioning of each.
Category making became the practice of choice for standing out from the crowd. Of
course, category making is hard and expensive, but trying to stand out in a crowded
category is hard and expensive too. The money was available from investors to do either;
it was just a matter of where one chose to spend it.
Mistakes were made. Some companies tried to make categories when they didn't have the
right stuff - they lacked an OMI or enough defensibility. Many of them crashed and
crashed hard.
Other companies chose not to category make when they should have. They tried hard to
stand out in crowded categories where buyers were so overwhelmed by options that their
initial winnowing process became a checklist and a "speeds-and-feeds" beauty pageant.
Products that provided order-of-magnitude improvements through unimagined areas of
innovation were overlooked because the makers of the categories in which they
languished had long ago defined the terms of competition.
Some got it right. They positioned in the right existing category and worked hard to
present clear differentiation and a compelling value proposition to stand out in a crowded
field. A great example of this is Juniper. It stepped into the core routing category created
by Cisco and dominated by Cisco's 12000 product. It incrementally improved on the
performance along the competitive dimensions defined for the category by Cisco and
introduced some eye-catching enhancements around reliability, a topic of high value to
the target market. Obviously, its success is well documented elsewhere.
Others got it right by successfully creating a new category and convincing buyers that
they needed to change the way they thought, designed, and bought. A great example of
this is Ciena with the creation of the DWDM optical transport category, which introduced
an order-of-magnitude (16x) improvement over existing optical transport gear and
required an architectural change for competitors to match. Obviously, Ciena's hard work
in creating this category has translated into market success and value creation.
What Has Changed?
So how does a down market affect the decision of whether or not to category make?
Things are definitely different in a down market. For better or for worse, fewer surviving
companies are in each category, so it is easier to stand out on the basis of one's own
merits. There is also less money available to spend on the evangelization required to
successfully create a new market.
So why would anyone try to category make in a down market?
Startups must consider two fundamental issues. The first is the eternal truth that being in
the wrong category is a bad thing. The second is the specific truth that customers are
more sensitive than ever to the risk/reward equation during tough times.
Categories are extremely helpful both to vendors and to their customers. Vendors can use
category definitions as a short cut: "We are just like Juniper, except that…." The category
shortcut creates an immediate connection so that the audience can understand the
fundamental value proposition and then spend all their energy understanding the
distinctions.
Similarly, customers use categories to understand who their vendor options are and the
fundamental criteria for evaluating those options. A given customer may more heavily
weight one factor (e.g., scalability) higher than another (e.g., multiprotocol support), but
the set of criteria have already been defined as part of the implicit category definition.
This is a wonderful situation when a product is in the right category. It is a disaster when a
product is in the wrong category. The shortcuts fail and the decision criteria are all wrong.
Some customers that should buy the vendor's product do not because they do not
understand the true value of the innovation. That's bad. Other customers do buy the
product but for all the wrong reasons and wrong applications. That's even worse.
However, a greater challenge for startups in a down economy is the dominance of the
status quo. Fear, uncertainty, and doubt are magnified when every dollar is precious and
every purchase decision is under the microscope. Change becomes a dirty word, and risk
is managed into oblivion.
In this environment, every startup is suspect. Customers cannot afford to bet their
budgets (or more realistically, their jobs) on an unproven company with an unclear future.
Throw in significant innovation, especially around a new architecture, and the market gets
really bleak.
Thankfully, customers still have problems that need to be solved. They have pains that
will not go away just because their budget has. If the only way to effectively address that
pain is by implementing a new product using a new and unproven architecture, delivering
an order-of-magnitude improvement, then so be it.
In fact, in this environment category makers have a distinct advantage over non-category
makers. Customers that need the OMI are going to buy it. If they believe the first startup
to offer it does not have a defensible position, then they will wait for the incumbents to
match the offer with their next release. But if the startup offering the OMI is truly in the
category-maker space with architectural defensibility, then customers will not be able to
wait for the rest of the market to catch up.
Category making in a down market is also easier and less expensive. There is certainly
less competition for attention, and the industry as a whole is more focused on meaningful
substance, not fluff and (expensive) hype.
+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
What's Next?
+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
So if you put all this together and apply it to your present situation, here are some
guidelines:
- If you are a new startup trying to get funding and to get service providers or someone
else to buy your equipment today, good luck. If you do not represent a tremendous
"reward" for the risk involved, we doubt that any established service providers will take
the bet. We tend to use OMI as the yardstick for "tremendous," which by definition means
10x, but you may be able to get by with 5x.
- If you are a mature startup with existing products and existing customers successfully
using those products, congratulations! Your chances of survival are greatly improved;
however, this clearly is a survival game. Sources of capital are scarce and it is a real
luxury to have revenue streams as one of those sources. Therefore, strategic decisions
(shutting down products/businesses that do not fit either tactically or strategically) are
critical.
- If you are a mature startup with existing products but without existing customers or with
existing customers who are not likely to survive, ouch! If you have a defensible OMI, then
you had better get really good, really fast, at clearly communicating it and the benefits
your innovation represents. It will not be easy, but hopefully you can leverage your
existing relationships (investor and customer) to survive and thrive. If you do not have a
defensible OMI and your funds are shaky, then have you considered your exit strategy?
- If you are a company like Juniper or Ciena who has established leadership in a
category, then you are in yet another boat. What comes next? The battle for survival is
not over nor is the battle for market leadership. What are the right next steps -- next
products, next markets? What available assets are right for you to pick up at the right
price (a la Ciena with ONI)? Is it the right step for you to consider consolidation through
merging with another successful startup so that you have a more complete value
proposition to your customers (economies of scope vs. economies of scale)?
Category making is a critical consideration for any marketing department today. The real
issue though, in rich economic times or in poor, is often not the considerations of being in
the right category but the challenges of being successful when positioned in the *wrong*
category - these challenges are almost impossible to overcome. Your customers will
compare you to the wrong competitors, evaluate you using the wrong criteria, and
consider you for the wrong opportunities. This could be deadly in today's environment.
So if you do not fit into an existing category, it is probably critical for you to be a new
category maker.
The important goals are still the same:
- Educate the industry on the need for change
- Educate the industry on the value of the OMI
- Clearly communicate the compelling vision AND the near-term pain relief
The reality is:
- Having to do all this with a smaller budget
- But facing less competition for attention
That is why marketers get paid the big bucks, right?
+=+=+=+=+=+=+=+=+=+=+=+=+=+
For Further Reading
+=+=+=+=+=+=+=+=+=+=+=+=+=+
If this topic interests you, we recommend you download several white papers for free
from the TeleChoice Website ( http://www.telechoice.com/inprint_whitepapers.htm ):
"Category Making in a Down Market"
A more complete discussion of this very topic
"Route Control: Building Real Confidence in the Internet"
A current examination of a new category being made by several innovative startups
"Fighting the Real Competition : Making New Technology Markets"
Specific guidance on how category makers must position against the status quo
+=+=+=+=+=+=+=+=+=+=+=+=+=+
Need Some Help?
+=+=+=+=+=+=+=+=+=+=+=+=+=+
TeleChoice helps companies everyday better position their products and firm for success,
whether making new categories or simply trying to accelerate their sales in this tough
marketplace. TeleChoice's Strategy Labs are perfect environments to refine business and
market strategies. Contact us at info@telechoice.com.
+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
|
TeleSparks (Archive)