Category Creation vs. Disruption - How Does Your Startup Compete?
A key question many startups ask is: how do you stand out in a crowded market?
Are you a disruptor, shaking up an existing industry, or are you a creator, building something entirely new from the ground up? Both approaches come with challenges and opportunities, and knowing where you fit can make all the difference in how your brand grows and competes.
We had the pleasure of hosting a recent panel discussion on this topic as part of the Sydney Spark Festival with Adam Jacobs, CEO and Co-Founder of Hatch and Cal Davidson, Head of Partnerships at Cake Equity.
These are some of the key insights we learned:
What is a Category Disruptor?
Category disruptors are startups that enter an existing market and fundamentally change their operations. These companies offer superior value propositions that allow them to capture significant market share from the established players.
Netflix is a fantastic example. Though they initially disrupted the video rental industry by offering DVD delivery services, Netflix's journey illustrates the potential for category disruptors to evolve into category creators. As Netflix transitioned from DVD delivery to streaming content, they created the market category: subscription-based streaming entertainment.
Closer to home, a leading category disrupter in Australia is Hatch, a recruitment marketplace for Gen Zs. Hatch is disrupting the traditional recruitment model: job boards.
They have developed a personalised and efficient job-matching platform, adopting a SaaS business model rather than the transactional model used by traditional recruitment platforms.
What is a Category Creator?
Category creators introduce entirely new products or services that define novel market segments. This approach often demands significant investment in customer education to create demand from scratch.
Airbnb exemplifies this strategy by creating the peer-to-peer lodging category. Despite initial scepticism, Airbnb's innovative model allowed it to capture a substantial portion of a previously non-existent market.
An exciting example of category creation in Australia is the journey of Cake Equity. Cake didn't invent cap table management software; however, the incumbent solution was to use a clunky Excel file to track employee equity ownership. Cake has created a new market category in Australia, focusing on monitoring employee engagement and motivation through ESOP programs. Their dedicated platform gives employees greater visibility over their remuneration and ESOP information.
The Challenges of Market Positioning:
Harvard Business Review explains that category creation requires an innovative product and a game-changing business model. Breaking into a new market often means stirring things up and challenging the status quo.
There are unique challenges beyond determining which approach to take, such as:
Market Education: Category creators must ensure they have the correct language and messaging available to educate the market about their products.
For example, Cake has successfully implemented a content and community strategy with easily accessible guides and templates, fuelling solid organic growth for the startup.
Market Timing: Figuring out when a market is ready for disruption or a new category can rely on certain tailwinds to take off. Entering too early or too late can be detrimental and expensive.
For example, the Hatch founders took a patient and iterative approach to determining what product and business model to pursue based on current recruitment trends and developments.
Competition: Creators and disrupters must be rock solid on their value proposition.
Disrupters: Be clear that your product is a 10x improvement over any competitors.
Creators: Clarity around why your category should exist and the value of building this category is essential to ensure you stay ahead of fast followers and other businesses trying to enter the category.
For example, Cake and Hatch emphasise building a 10x product to compete against new startups and corporate competitors.
Creation or Disruption: Why not both?
Ultimately, you don’t have to choose just one — yes, you can be both a creator and a disruptor!
But figuring out where you stand in the market is vital. Are you shaking things up in an existing space or introducing something new?
Researching, considering, and knowing the answer will strengthen your positioning and safeguard you against competitive threats.
Thank you to Cal and Adam for providing your invaluable insights and expertise.
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