There are thousands of successful SaaS companies in the market, but only a few that have earned the title of “Category Creator.” Category creation is not about incremental improvement on what already exists — it’s about identifying a problem and doing a better job than anyone else at understanding, articulating and solving it.
Great category creators not only design and assert a vital category, they also focus their passion and resources on creating a company dedicated to solving the category problem. Then they deliver a compelling product that the ecosystem loves and can quickly embrace, thereby dominating their markets and positioning themselves as leaders in an ecosystem that lauds them and affords them amazing synergistic opportunities.
In Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets, the authors state, “Winning today isn’t about beating the competition at the old game. It’s about inventing a whole new game — defining a new market category. If you think that having the best product is all it takes to win, you are going to lose.” This is the philosophy that the SaaS category creators below have embraced and why they have seen such great success. Let’s take a closer look at how category creation and disruption played into their success.
Not only did Salesforce disrupt CRM software, they also created the cloud-based sales automation category and are the founding father of SaaS. They are what the Play Bigger authors call a category king: “a company that creates, develops, and dominates new categories.” Salesforce focused on small businesses, many of whom were non-consumers at the time. They created a trustworthy reputation among these small businesses and non-consumers. In doing so, they created a market that changed how customers think. A category creation philosophy paved the path for their exponential growth.
Slack is the perfect example of fulfilling a need that customers couldn’t quite pinpoint before its invention: in-office communication. Most people can tell you firsthand that it wasn’t working but, as the authors of Play Bigger put it, they didn’t realize there was another way — until Slack. Now, Slack is transforming intraoffice communication and threatening Skype, email, and the collaboration tools that many offices once relied on. With sky-rocketing growth (500,000 customers within a year), Slack demonstrates the ROI of category creation.
Dropbox reinvented the file synchronization industry. It wasn’t that incumbents didn't understand the problem, it was just that they didn’t know how to successfully execute the solution. Dropbox did. They made file storage and sharing seamless by providing faster, more successful syncs and product integrations with Adobe and Microsoft Office 365.
HubSpot coined the term “Inbound Marketing” and invented a new method to capture customers through B2B marketing automation. Customers don’t want to their inboxes bombarded with marketing spam; they want to be informed with quality content to help make their purchasing decision. HubSpot created a matrix in which companies produce quality content and buyers come to them. This approach has helped countless companies gain trust and win business — and established Hubspot as the stand-out authority on all things inbound.
Zenefits disrupted the human resources management industry by providing a variety of functions (payroll, benefits management, vacation tracking, compliance and more) via their SaaS-to-cloud platform for free. They make money if their customers enroll in health insurance plans using the platform, so that they act as a health insurance broker and receive commissions. Because of this category-creating business model, they have earned the title of fastest growing SaaS company ever.
As SaaS became the dominant tech business model Gainsight saw a category opportunity in the suddenly essential business function of Customer Success. Even before SaaS, excellent customer experience was top-of-mind for tech companies but the advent of cloud-based software meant that it would soon be a 24/7 need. Gainsight saw that and positioned themselves “for any business that wants to establish a repeatable relationship with its customers.”
LeanKit is smaller but no less impressive story of category creation. LeanKit is a visual project delivery tool that enables teams of all types and across all levels of the organization to apply Lean management principles to their work. While these workflow methodologies have been in existence long before LeanKit, it was the first company to create a tool that enabled approaches like Kanban, Scrum, Waterfall and more. Now, LeanKit helps teams actively work together to deliver customer value while building business fitness during the process.
VMware defined and dominated a category of computer virtualization. VMware is a global leader in cloud infrastructure and business mobility. They enable enterprises to master a software-defined approach to business and IT. With their solutions, organizations are creating exceptional experiences by mobilizing everything, responding faster to opportunities with modern data and apps hosted across hybrid clouds, and safeguarding customer trust with a defense-in-depth approach to cybersecurity. They are currently the undisputed leader in the x86 virtualization segment of computing.
In 2005, Workday’s founders decided to form a start-up that would sell cloud-based applications for finance and HR to revolutionize the enterprise software market. Today, it is an on-demand (cloud-based) financial management and human capital management software vendor. One of their biggest differentiators is its use of metadata to define data relationships. Some say the Workday approach is a brand new way of doing enterprise resource planning (ERP) that will rip traditional suppliers apart.
Surescripts was founded in 2001 to replace paper prescriptions with electronic prescriptions. The problem they were trying to solve, unifying a disjointed system for ordering prescriptions and maintaining patient records, was enormous. The sheer number of stakeholders they needed to rally, the immense range of technology they would have to integrate, and the effort required to optimize every capability had scared off competitors and created a space that Surescripts could dominate. Now, they process more than 6 billion transactions each year.
Wall Street rewards category-creating companies. Most of the category creators represented above have almost a quarter of the market share: Salesforce clocks in at 19.7%, Slack at 21%, and Hubspot at 22.99%. In industries with innumerable competitors, that represents significant market domination.
If you are in the right place at the right time with the right idea, establishing early leadership in a category affords more access to funding, increased opportunity to attract top talent and a better chance of winning more market share over time. The value of the ten companies above is directly tied to their ability to fill a customer need that was unknown or unaddressed before the entered the scene: they saw a problem in their industry or world and then they found a solution and were able to bring it to life. Does this sound like your company? If so, category creation could represent an amazing opportunity.
Category creation is not for every company, though. Having the right instincts at the right time and the right resources to assert your thesis is critical. A poorly-founded category assertion can be a fast waste of time, energy, and money — not to mention reputation. You will likely need some outside help to ensure you can step far enough away from yourself and your aspirations to get a real-world, objective view of the problem you aim to solve. Get in touch.