Tech startups and innovative businesses are out to create new industries, or at least put new twists on established industries.
This creates a challenge for these entrepreneurs. Most are not prepared to answer the question, “What business are you in?”
As consumers and customers, we don’t think about this question much in our daily lives. We mostly buy common things that are well understood. These types products and services have names and been classified in groups: types of restaurants, apps, political candidates, digital music, university majors, nonprofit causes, web development services or sophisticated technologies used by big companies. Everything is organized in groups with names that are recognized.
This is true for all the things that have become a reasonably large industry, by definition. It can’t get big unless there’s a simple, widely understood name for the type of thing that it is.
Surprisingly, simply answering “What is your new thing?” is a top issue when creating newfangled products and services. CEOs, founders and business owners quickly realize that when people don’t understand what their thing actually is, customers don’t buy, investors don’t invest and employees aren’t effective.
Startup pitch events are notorious for highlighting this challenge. After watching 20 startup founders rapidly present their companies, onlookers are lucky if they understand what 25% of those startups actually do. And these are smart entrepreneurs talking to a sophisticated audience. It’s jarring and confusing for the audience to make sense of each startup, but everyone quickly realizes the predicament and tries to have fun with it.
It’s just harder than anyone realizes to describe what the new thing is before “everyone gets it” and uses a simple term to describe it. This goes for new variations on things we already understand (such as grocery delivery, startup lawyers or electric cars) and the newer things that haven’t been simply described yet (which is why I can’t name them easily here, but you get the idea).
Big companies have this problem too. We just don’t get to see their test marketing in full view. Big companies figure their simple business description out before they go to market, unlike many startups.
The simple descriptive term for the type of thing you offer is called your “category.”
Categories exist for every type of product and services, such as: CRM software for small business, yoga instructors, dentists, organic sports drinks, marketing strategy consultants (my category), political candidates, commercial real estate brokers, EDM (music), business leadership books and European coffee machines. Your direct competitors exist in your category, too.
Every book, job, software, service, food product, restaurant, philosophical idea, high school clique, country, city, financial product, startup business, song, painting or whatever has been duly organized into simple descriptive category that we use to deal with them.
Category names were made up by people. The category name “smartphone” doesn’t exist inside the phone. It exists in our minds. Yet these categories have become as real to us as the roads we drive on. And just as hard to change.
Everything a business sells and their customers buy is in a category that is useful for everyone involved. Categories are an important way that we engage with the world to find and buy stuff. Even though we don’t talk about categories much, it’s just the way our brains work.
When we search with Google or Amazon (or ask friends for referrals) without using a specific brand name, we are using a category name to narrow things down. Search for “cheap hotels downtown phoenix” using Google: cheap hotels in downtown phoenix is the category. The naturalness and necessity of categories in our brains is why Google search is so useful and effortless – and why the company is so valuable.
Did you know that Amazon doesn’t have an “unnamed” category for those things that don’t fit into an established department? Yelp doesn’t have a “can’t describe the type of restaurant” category when we look for restaurants. There is no job that can’t be put into a department within an organization. Same goes for the analysts that help categorize new technologies for big companies – it all fits in categories.
Stuff that exists outside of our categories becomes really hard to deal with, so the world tries its best to categorize everything and it resists when categorization is not clear.
Categories are also absolutely necessary and can’t be ignored by entrepreneurs, even when their new thing is disruptive and their category game is difficult. Remember, every category we recognize now as a common was at some point uncommon and difficult to explain by entrepreneurs just like you. The successful ones dealt with their category challenge and made the most of it.
Some entrepreneurs punt on their category decision and don’t go through the hassle of defining their simple category. Or they just find a way to not talk about it. I have seen both and neither ends well. The CEO/founder and the leadership team need to decide and declare the their category focus in their business. This decision can’t be delegated as an afterthought to the core business strategy.
Some ambitious CEOs say things like “we are in the happiness delivery business” as a way to ignore the category question. Nice try. I’m not buying from you, Mr. Happiness, unless you tell me if you’re a luxury hotel, a doctor or an ice cream shop. Let’s start with your actual category and work our way back to happiness. My emotional brain loves happiness, but my logical brain will stop the transaction if it isn’t clear about what exactly I’m buying and how it compares to other things like it.
Believe me, I know that you could take an hour to personally explain your new thing to someone until they understood it enough to buy it from you. That’s how all this crazy stuff starts. But face to face conversion without a simple category definition won’t scale.
For your business and your category to grow beyond small potatoes (just the few people you can personally convert with a lot of words), your category needs to get simple and people need to know about it, starting with your employees and customers. As the CEO, you need to be clear about your category and speak it often. You should be very tired of telling the story over and over again.
Where do you think all these existing categories came from in the first place? Ever hear of “contact management software?” I was there when that term was made up by the founders of ACT!, the leading contact manager, in 1989. I helped install that category term into the world and sell lots of ACT! software along the way. Playing the category game was tricky and hard, but it was one of the most important things we did to become the leader of that market.
The category game isn’t changing because our brains aren’t changing.
Even though it can be difficult, your early growth will stall if you are not crystal clear about your category and passionate enough to tell the world about it.