Play Bigger

Al Ramadan, Dave Peterson, Christopher Lochhead, Kevin Maney

• Publisher: Harper Business
• Year: 2016
• ISBN:
  9780062407627
• Topic: Negocios y empresa
• Subtopic: Negocios en general

The founders of a respected Silicon Valley advisory firm study legendary category-creating companies and reveal a groundbreaking discipline called category design.

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, developing it, and dominating it over time. You can't build a legendary company without building a legendary category. If you think that having the best product is all it takes to win, you're going to lose.

In this farsighted, pioneering guide, the founders of Silicon Valley advisory firm Play Bigger rely on data analysis and interviews to understand the inner workings of "category kings"— companies such as Amazon, Salesforce, Uber, and IKEA—that give us new ways of living, thinking or doing business, often solving problems we didn't know we had.

In Play Bigger, the authors assemble their findings to introduce the new discipline of category design. By applying category design, companies can create new demand where none existed, conditioning customers' brains so they change their expectations and buying habits. While this discipline defines the tech industry, it applies to every kind of industry and even to personal careers.

Crossing the Chasm revolutionized how we think about new products in an existing market. The Innovator's Dilemma taught us about disrupting an aging market. Now, Play Bigger is transforming business once again, showing us how to create the market itself.

Part I

The Category King Economy

1

Creation Wins

Legendary Questions

What do Facebook, Google, Salesforce.com, Uber, VMware, Netflix, IKEA, Birds Eye, 5-hour Energy, and Pixar have in common?

In what way does Apple work like 165-year-old glass company Corning?

What all-too-common mistake did Microsoft make—and repeat over and over—when it wasted billions of dollars on Zune, Windows Mobile, Bing, and Microsoft Stores?

How do you explain why some start-ups last and build value while others shoot up and then flame out?

Why was Elvis not just the King, but a category king?

And what can all of this teach us about enduring success in the twenty-first-century economy—in both good times and downturns?

The key to each has to do with creating, developing, and dominating new categories of products and services.

Stick around and we’ll tell you how that’s done.

True Stories of Kings and Kingdoms

Category kings are all around us. They create entirely new categories of business, or entirely new ways of doing things. For this book, we studied category kings, analyzed data about them, and interviewed founders of many. These are the companies that shape our lives and alter the future. As we like to say, they play bigger than other companies.

Category kings are not a recent phenomenon. Before the 1920s, there existed no such category as “frozen foods.” Clarence Birdseye—yep, that was actually his name—created it. Like many category creators through the ages, Birdseye was an outsider. Born in Brooklyn, New York, in 1886, he spent a lot of time on his family’s farm on Long Island and developed a passion for taxidermy (not a hobby many kids have these days). That led him to a job as a naturalist for the U.S. government, which eventually took him to Labrador, in Canada’s northeastern corner. Birdseye watched the Inuit people catch fish and toss them on the ice, where the fish flash-froze, retaining their flavor and texture. When Birdseye returned to the United States, he experimented by flash-freezing fish between cakes of dry ice, and then realized the process also worked for vegetables. He started a company—at first called General Seafoods—to make and sell this new category of product.

As he built his company, Birdseye realized he had to design and build the category itself, because before Birdseye, there was no ecosystem that would get frozen food from a factory to consumers, and no demand for frozen food because consumers didn’t even know they might want it. He developed freezer cars for railroads and sold rail operators on the idea. He developed freezer cases for grocers and convinced them that frozen food would increase sales. He even convinced DuPont to invent cellophane. And he ran ads that positioned frozen vegetables as something different from canned vegetables. One early Life magazine ad—by then under the Birds Eye brand—showed a woman in pearls lounging on a pillow eating Birds Eye spinach, implying that only commoners put up with canned spinach. Frozen food was not just better than canned food—it was different from canned food. Birdseye’s work took a couple of decades to pay off, but it takes time to build and dominate categories—and it took a lot more time then than it does now. Of course, almost a century later, Birds Eye is still a huge brand in frozen foods.¹

Clarence Birdseye has more in common than you might think with the founders of Uber.

Uber is a category king of recent vintage. Not very long ago, we all lived with an age-old problem: in most cities, taxi service sucked. If you walked out to a given street corner, you had no idea if a taxi might happen by in a few minutes or, well, never. Yet there didn’t seem to be an alternative way to get an instant car ride, so people didn’t seek one out. We had an old, ongoing problem, but we didn’t really know it was a problem that could be solved in a new way.

On a snowy night in Paris in 2008, Travis Kalanick and Garrett Camp, in the city for a European tech conference, stood roadside getting wetter and colder as they tried in vain to hail a cab. Kalanick and Camp were, separately, already reasonably successful tech entrepreneurs. Kalanick had started an online content-delivery company, Red Swoosh, which got bought by Akamai Technologies for

20 million. Camp had done better, founding StumbleUpon—a content discovery site—and selling it to eBay for

75 million.² They were looking for a next idea for a company—perhaps something they’d do together—and while freezing and frustrated in Paris, they talked of solving this taxi problem. Apple’s iPhone had been introduced less than a year earlier, changing the way we think about mobile technology and services. Why, Kalanick and Camp wondered, couldn’t you pull out your smartphone, push a button, and get picked up by a car?

Back home in San Francisco, the pair experienced the problem anew. Hailing a cab in that town was like trying to get a bartender’s attention in a jam-packed nightclub. So Kalanick and Camp went to work on their idea, and launched their service in the summer of 2010 in San Francisco. As millions of users now know, a customer’s iPhone app would, at the push of a button, send a dispatch to drivers, showing the customer’s location. Drivers—not taxis, but moonlighters driving their own cars—would have their own version of the app on a phone, allowing them to see dispatches and respond. The system would store customers’ credit card information, so paying for the ride could be easy and safe for everyone involved. Kalanick and Camp originally called this service Uber-Cab, and later dropped the second part.

Half a year later, investors were lining up to give Uber money. Benchmark Capital put in

10 million. Some famous names such as Jay-Z and Jeff Bezos invested. Uber expanded to other cities. As it grew, Uber at the same time did something extremely important: Uber made all of us aware that we had a taxi problem—and that the problem had a new solution. Uber did this through the way it designed the company and its service. It did this through its messaging to the public. And it did this through confrontation. Every time the taxi industry tried to stop Uber, the scuffle made people more aware of Uber. In London, taxi drivers protested Uber by going on strike. When riders couldn’t get cabs, they signed up for Uber at a rate eight times higher than before the strike. As Uber was developing its service and its company, it was defining this new category of problem and inserting it into our brains.

Within a couple of years, Kalanick, by then Uber’s CEO and public face, understood that he could frame an even larger problem that Uber could solve. All of personal transportation was too expensive and too messy, particularly in cities. Plus, too many cars lead to traffic jams and pollution. Those were big problems that never had a good solution. But what if, Kalanick asked all of us, fewer cars could serve more people? What if his service could get so big, reliable, and cheap that in many places using Uber could become more desirable than owning a car? He wanted to make “transportation that’s as reliable as running water,” he told interviewers. And, by the way, that transportation wouldn’t only move people around town—it could move anything. It could deliver stuff. Uber was designing its service and its company and, at the same time, a bigger category the company could define and ultimately dominate.³

By 2014, Uber was getting what seemed like preposterous valuations from investors. In June 2014 it was valued at

17 billion. By December the number hit

40 billion. Six months later it topped

50 billion. If you looked at Uber’s business at the time, you would’ve concluded that its investors were out of their minds. But if you looked at the enormity of the problem Uber had teed itself up to solve,

40 billion or

50 billion seemed cheap in the long run. Uber was creating a category of business that never before existed, and the company put it into our minds that it uniquely understood the problem and could craft a solution. Where a half-dozen years before there had been nothing, Uber was creating a whopper of a category, and making itself king. That’s what investors were paying for: the potential of this new category and the belief that Uber would reign as its king for a long time. In 2015, Uber was still private—a sign that despite all its notoriety, Uber at five years old was still developing its category. Our data research shows that smart companies typically go public about the time their category takes wing—usually six to ten years after the company’s founding.

In the twenty-first century, new category kings are being founded all the time, and at a faster rate than ever. A company called Sensity Systems is but one example. It started on a category creation path after serial entrepreneur Hugh Martin took over what was then a tiny company making LED lights. Martin was an outsider to the lighting industry. He’d previously run a biotech company, a telecommunications company, and a video game company—but never a lighting company. He saw an interesting opportunity in LED lights. LEDs run on the same voltage—five volts, DC—as computers, networking equipment, and digital sensors. That means that LEDs can essentially digitize light fixtures, changing the lighting industry just as much as music and photography were changed by becoming digital. In fact, lights can be embedded with sensors that pull in information about air quality, motion, sound, or weather. And since the lights can communicate over wireless networks, the LEDs can be networked together to share information or collect massive amounts of data. Lighting networks would then be able to track the number of cars in a mall parking lot, or, for police, light networks could detect gunshots with far better accuracy than current technology. Down the road, Martin could envision a globally connected light platform.

We had the pleasure of working with Martin on defining and planning out the category he envisioned—a process we call category design. Martin and this team settled on a name for the category: Light Sensory Network, or LSN. Martin started evangelizing the category at the same time as he was building his company. He wanted potential customers to first understand the problems a Light Sensory Network could solve. And if they wanted the problem solved, who were they going to call? Of course: the company that defined and made itself synonymous with category—Sensity. Without this kind of thinking, Sensity would’ve been just another undifferentiated smart lighting company. But it became the leading Light Sensory Network company.⁴ Huge global companies entered the business of LED lights and sensors—General Electric, Philips, Samsung, LG. But Sensity, which by 2015 had signed up GE and Cisco as partners, wasn’t trying to beat them by making better sensor-loaded LEDs. It planned to win by marketing something different, focused on the network and data. If Sensity executes well, it will reign as an enduring category king of Light Sensory Networks.

Again, this will take time—probably a decade. There’s no guarantee the strategy will work. A lot of factors will come into play, many that Martin or Sensity can’t control. But still, the chances of Sensity winning are much greater because it is doing the groundwork to design and develop its category. Sensity improved the odds that it will play bigger.

Category Kings Defined

The most exciting companies create. They give us new ways of living, thinking, or doing business, many times solving a problem we didn’t know we had—or a problem we didn’t pay attention to because we never thought there was another way. Before Uber, we hailed a cab by standing perilously close to traffic with an arm in the air. After Uber, that just seemed dumb.

These companies don’t only invent something to sell us. They are not making products or services that just incrementally improve on whatever came before. They don’t sell us better. The most exciting companies sell us different. They introduce the world to a new category of product or service—like Clarence Birdseye’s frozen food, or Uber’s on-demand transportation. They replace our current point of view on the world with a new point of view. They make what came before seem outdated, clunky, inefficient, costly, or painful.

We hear a lot about “disruption.” It’s a holy word in the tech industry, like maybe you should genuflect when someone says it. But disruption is a by-product, not a goal. Legendary companies create new categories that generate a gravitational pull on the market. Customers rush to a new category because it makes sense to them. In some cases, people leave an old category behind, and their departure sucks the life out of it. In that way, sure, new categories disrupt old categories. But for the smartest pirates, dreamers, and innovators on the planet, disruption is never the goal. Creation is the goal. Elvis Presley didn’t set out to “disrupt” jazz. He set out to create rock and roll—a product that came from his soul. Rock was different, not better, than jazz. But over time, as young audiences embraced rock, they left big-band jazz and crooners behind. The by-product of Elvis’s creation was disruption.

Sometimes, booming new categories don’t disrupt anything at all. Airbnb created a new category of on-demand places to stay, but as of this writing no one—including and especially cofounder and CEO Brian Chesky—is predicting the new category will lead to the collapse of the hotel industry.

Our term for the companies that create, develop, and dominate new categories is category kings. Importantly, category kings are not necessarily the companies that first hatch an idea or patent an invention. A single cool product launched into the universe doesn’t make a category king. Category kings take it upon themselves to design a great product, a great company, and a great category at the same time. A category king willfully defines and develops its category, setting itself up as the company that dominates that category for a long t...