Law #2: The Law of the Category
(This entry is part of a series I am writing on
Immutable Laws of Marketing.)
The Law of the Category says that if you cannot be first in your category,
setup a new category. This is really just another way of explaining a
concept called "differentiation".
New entrepreneurs tend to think purely in terms of finding a product
which is better than the competition. But so very
often, it is more important to be different than to be
better. Every difference defines a category. And for each
category, somebody is the leader. In other words, a large market is really
just a cluster of small markets. Tackle the large market, and you will
probably lose. Tackle a small market, and you might
Don't think of MacOS as the number two desktop computing
platform. Instead, think of them as the number one desktop computer in the
graphic design category. The difference highlights the category in which
Apple is number one.
Note that I am fully aware of the relative size of these two
categories. Microsoft is number one in a category which is many times the
size of the category in which Apple is number one. Finding a category in
which Apple is number one is not an effort to claim equality. Rather, it
simply explains who buys Macintosh and what differentiator is important to
The point of creating a category is to make sure you and your customers
understand what your key differentiation is. What makes you
different? To whom does that difference matter? In the minds of
those people, you are number one.
But do make sure there are enough of those people. Every difference
defines a category, but not every category matters. For example, suppose
you want to create the number one IDE for programmers who develop enterprise
accounting software in Forth. I daresay you won't encounter
much opposition in your effort to win this category. However, you
won't encounter much revenue there either.
Understanding categories has been critical for SourceGear as we
do business in the source control market. People sometimes ask us how
we can possibly sell source control tools when CVS is free. The reason is
that "open source" is merely one category in the source control space.
This market has quite a few categories, and the competition across
those categories is minimal. If the customer wants a workflow-based
tool, they only look at the tools in that category. If cross-platform
support is critical, the customer isn't paying much attention to the
Perforce has played this game very well by setting up their own category
called "fast source control tools". Speed is their
differentiator, and they seem to be having a nice measure of success with this
SourceGear Vault plays in the Windows-centric category of source control
tools. I don't have data to prove it, but I'm pretty sure that right now
we are number one with the collection of people who are using SourceSafe and
want a painless transition to something better. We chose our category very
Ries and Trout are right -- setup a category in which you can be first.
But size does matter. Make sure the category you choose is not too large
and not too small.