Landing on the right startup category for your venture is a big step toward successfully scaling. But you need to ask: can you fit yourself into a category that already exists (and do you want to)? Or should you create something new?
A while back on Process Makes Perfect, I spoke with Greg Head, CEO of Scaling Point and founder of Gregslist. A legend in the Phoenix startup community, Greg helps businesses nationwide define themselves within a category, so they can grow exponentially.
So, here’s the advice Greg gave me about finding (and entering) the perfect startup category for your company:
🔥 Tip: Subscribe to Process Makes Perfect for your daily dose of small business advice.
What are startup categories?
I like to think that categories are to startups what genres are to movies. You likely don’t pack tissues to go watch a comedy, but you might for a drama. That’s because, as an audience member, you know what to expect based on the genre classification.
Similarly, categories (sometimes referred to as “sectors”) classify what kind of startup you’re running. That way, the market can easily figure out what you do and where to put you.
And in turn, you can figure out how to market your business. Meaning, your startup becomes easier to scale and sell (which is usually the goal)!
“[Startup categories] are kind of hidden in plain sight,” Greg said. “They’re in everything. They’re everywhere.” Because of this, chances are good, there’s already a category out there for your venture.
For example, “beauty” and “food” are 2 very different startup categories. One pertains to things like makeup and hair products. While the other focuses on, well, food.
So if you sell edible makeup, you want to figure out where your company best fits: beauty or food. Whichever category you go with ultimately informs your audience, competitive landscape, and long-term strategy.
Or you might realize that you don’t fit cleanly into either category – but that you created something completely new and never before seen. And that’s fine too. But (and here’s your warning) creating your own category will be a lot more legwork to get you where you want to go.
Don’t fix what isn’t broken
Rather than making things more complicated than they need to be, look for a pre-existing startup category that your business naturally fits into first. Then, work on trying to establish your company within it.
For most companies, there’s no need to create your own category. In fact, most leading companies don’t! For example, “Zoom didn’t invent video conferencing,” Greg explains. “They just did it better.”
So when it comes to choosing your own startup category, narrow your focus way down. If you’re stuck, show your product to people in your target market. And ask them:
- What is this thing to them?
- Can they explain what it does?
- Can they define what it is?
If your target audience doesn’t know what to call your product, you may have a new category. However, if they can name what it is, and recognize where it fits into the market, lean into it.
Work your way into the category
If you find a startup category you fit into, be explicit in your messaging and straight up say that you are this kind of product. “You actually have to declare yourself – your category has to be sharp,” Greg told me.
And know that fitting into an existing category doesn’t mean you did something wrong or that you’ll get lost in the masses. In fact, fitting in might make it even easier for you to stand out.
For starters, people already get what you’re trying to do. So you don’t need to waste time and resources trying to educate the market. When you create your own category, there’s a lot of upfront work explaining what you do.
Plus, you can see what has been working for the competition, then make it work better for your business. Or better yet, figure out what is working for your competition – and do it better, cheaper, and at a larger scale. And let that be what differentiates you.
Any business model benefits from startup categories – even business giants. Disneyland, for instance, is a theme park. It has rides, games, and fried food galore. But everything it does relates back to its characters and uses family-oriented messaging. Meaning, it is a Disney-themed theme park. And that’s what makes it stand out.
As a result, Disneyland saw 20k visitors the first year it was open. Since then, Disney has widely earned the reputation of operating the best theme park in the world. And saw 156M park visitors worldwide in 2019 alone. Not because it did something wild and new. But because they lean into what makes their parks different.
Creating your own startup category
Only after exhausting all your existing startup categories options should you try creating something new. You’ll know that you have a new startup category if your business:
- Doesn’t fit in an existing category
- Fits into multiple startup categories – and can’t be narrowed into one
- Isn’t something your target audience recognizes
Take Uber, for example. A few years back, there was nothing like it. And now, you’d be hard-pressed to meet someone who has never used – what they’ve dubbed – a rideshare service.
Riffing off taxi services, Uber added technology that allowed anyone with a car to become a taxi service during their free time. And in the process, they’ve added a layer of convenience to transportation that wasn’t available before.
And part of the raging success (on top of the great idea) was the coining of their startup category name: rideshare.
“Your category name, first and foremost, has to be practical,” Greg explained. Just because you can name your category anything doesn’t mean you should.
Instead, you want it to be so clear and easy to remember that people hear it and instantly know what you do. That way, there’s no room for confusion or misinterpretation.
🔥 Tip: If you’re naming a new startup category, use existing language to familiarize people with your business. For example, Uber combined “ride” and “share” (2 words people already know) to describe a new concept.
Making your category legit
Here’s where creating a new category gets really challenging. It’s one thing to come up with a catchy name and a whole other thing to get it to mean something to people.
“There’s the credibility game,” Greg said. “The world doesn’t want more categories. So you actually have to fight upstream and make that happen.”
Start by figuring out how to get your name out there – and more importantly, how to make it stick. Then, build credibility using real customer testimonials.
For example, Uber might have been the first to coin “rideshare.” But their biggest success was that they saturated the market early on.
Nowadays, you’ll have a hard time hailing a cab in most cities. But with your phone, Uber lets you call a ride from anywhere – whenever you’re ready. And it’ll take you straight to where you’re trying to go.
But most importantly, this experience is consistent. And Uber even asks customers at the end of each ride to get immediate feedback on how they’re doing. The best testimonials are then shared publicly in the company’s ads and social posts to build credibility throughout the market.
🔥 Tip: Put any testimonials you get on your website to help build trust with leads who are still on the fence.
Scaling with your category
Once your business establishes itself within a startup category, you’re ready to scale. At this point, you should know:
- Your category. Definitively, what does your company do?
- Your target customer. Who is your product for?
- The benefits you offer. Why should your target customers care?
- Your differentiator. What makes your product better than your competition’s?
- Your company’s purpose. What does your company stand for?
- That you have credibility. Where’s your proof that the market thinks you’re legit?
Combined, the answers give you your competitive edge. And your messaging, your branding, everything about your company should reflect this.
Because at the end of the day, which category you choose is how you market your company moving forward. It’s what you, your leads, and your customers say about your company. And it’s the difference between scaling big and wondering where you fit in.