Christopher Lochhead: preference

Transcript context

…It turns out that in business, most people, and in life for that matter, make a unquestioned, unconsidered, undialogued, unthought of decision that they don't know they made. And the decision they make is, "What I'm going to do, is I am going to compete in a market with demand, with a better product/service/brand, maybe a better business model, maybe a better set of growth hacking ideas that I learned on the Lenny Podcast. And when the world gets my better, the world will beat a path to my door." And if you go onto Amazon right now, Lenny, there's roughly a hundred thousand marketing books, and I think I'd have to double check, but I think there's about 60,000 or 80,000 business strategy books. And of course, me and my collaborators, we haven't read all of them, but like you and like many of us in business, we've read many of the tomes, the Bibles out there, and there's an interesting thing about virtually all of them. That's what they're about. It's about how to compete and win. Well, here's the aha. Nobody legendary ever did that. Not a one. We all know who Bob Marley is. We don't know who the 17th greatest reggae musician or band in the world is. We all know who Pablo Picasso is. We don't know who the fifth greatest cubist artist is. And so wherever you look in life, whether it's in the business world, people who drive social change, artists, creators of any kind, the people that we tend to admire the most are the people who broke and took new ground. And the aha here is the category makes the product, the category makes the brand, the category makes the company. So I'll give you the data and then I'll fully answer your question. So here's the data. We did an analysis for our first book where we studied every venture-backed tech company in the US from 2000 to 2015. And we asked a question that, to the best of our knowledge, had never been asked before. And we went to Stanford and we asked a bunch of professors this question, and they said, "We don't know this. You're going to have to do it yourselves." So we did, and incidentally had it peer reviewed and published in the HBR. And if you've ever gotten data published in the HBR, then you know what it's like to have a journalistic proctology exam. Anyway, here's the net of it. In tech market categories, on average, one company earns two-thirds, 76% to be exact, of the total value created as measured by market cap and or valuation. So not market share, which is important, market cap as measured by the value of all the companies in the category. So you take a category, you add all the companys' value together, and you say, "What percent goes to the leader, the category, queen or king? And what percent goes to everybody else?" One company, two-thirds of the economics. So the aha here, Lenny, is when we make the unquestioned, unconsidered, undialogued decision that we didn't know that we made, to compete, we have unwittingly said, "We're going to fight for the 24%." So the aha here, Lenny, is when we make the unquestioned, unconsidered, undialogued decision that we didn't know that we made, to compete, we have unwittingly said, "We're going to fight for the 24%. " And it's the distinction or delta between create demand and capture demand. So we prefer the term category design, and I can explain why design instead of creation, we don't have anything against creation, but creation creates a confusion in people's mind. When people hear category creation, because most people in business, most people in tech, are strongly oriented to product, what they think you said is first to ship a product that has X features. So when most people say category creation, that's what they think. They say, "They [inaudible 00:17:16] category, Myspace did." Or if you've been around for a little while longer, "GeoCities did." And so category creation, category design, does not equal first to ship a product with a set of features. So what does it equal? Here's the aha. Just like you can design a product, just like you can design a company culture or business model, you can actually design a market. And in so doing, you create a new distinction in value for people that didn't exist before. I'll give you a simple example. If I could own any product in the world right now, I think I'd probably want to own Purell. And there's a great thing about the company that makes Purell. The company's been around for a very, very long time, and they're owned by the original family that created the company. Their original problem that they were solving is, it was a husband and wife team, and they were working in a factory. This was 80 plus years ago. The company, by the way, is called Gojo Industries. Gojo. And Gojo is a portmanteau, putting their two names together. I think it was, maybe it was Gloria and Joseph, or I'd have to double check the husband and wife names, you'll excuse me, but the company's called Gojo Industries, and I think the granddaughter runs it today, if I'm not mistaken. Anyway, so the gal, the wife said, "This bar soap is disgusting. It's full of crapola, it's hairy, it's full of man nastiness." So the solution to washing your hands called a bar of soap was a disgusting, inappropriate solution for her. So she reimagined the problem, not as, "How do I wash my hands," but as, "How do I wash my hands without a disgusting bar soap?" And Gojo Industries created a whole new category called liquid soap. And in most restaurants, most corporate bathrooms, most airport bathrooms, if you start paying attention, you'll see the Gojo logo on the squeezy thing that you pull when you go to get the soap. So unlike most innovators and entrepreneurs, who get obsessed with the solution, and I understand why, we all love our shit, we all love our product. If you want to talk to me about our shit, I want to talk all about it. We could do a 12-hour deep dive on all your content and how you built the newsletter, and you'd love it. It'd be great. We all do. If you're a creator of any kind, entrepreneur, innovator of any kind, you love the thing you're creating, of course. However, Gojo focused on the problem, not just the solution. d be great. We all do. If you're a creator of any kind, entrepreneur, innovator of any kind, you love the thing you're creating, of course. However, Gojo focused on the problem, not just the solution. So they stay obsessed with the problem, and then they ask a different question, which is, "How do I wash my hands in the absence of water?" And of course, the answer to that question is a new category, [inaudible 00:20:44] hand sanitizer. And the dominant brand, of course is Purell. And so the aha here is the company that designs the space and gets it to tip at scale. And when I say designs the space, what I mean is specifically gets a meaningful percentage of the world to agree with their definition of a problem set, which then leads to their definition of a solution set. The company that does that at any kind of scale, wins. And so the number one question for any entrepreneur or any creator at all is, "Do I want to compete for 24% of an existing market category? Or do I want to create my own where if I can execute, I will earn two-thirds of the economics?" That's the decision that most entrepreneurs make, that they don't know that they made. And at its heart, category design is about the most radical kind of differentiation. So most companies actively seek comparison. If you go to, well, if go to many software company's website right now on their homepage, you'll see a Gartner report or a Forrester report on their homepage. You'll see ads and/or content that say, "Here are three competitors and a list of features," and there'll be 25 features, "And then there's us," and there'll be 125 features. And they're actively inviting comparison. You even hear it in ads. If you listen to what marketers say, Lenny, we say the stupidest shit. Don't take our word for it. Anyway. And so the legendary innovators over time, they did not compare their innovation to the past. They broke and took new ground. They wanted to be irreplaceable. They wanted to be so much value in the minds of customers that not only were the switching costs horrible, switch to what?…

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