Why Categories Matter

A new category emerges from a problem that gets clearly defined. The public comes to understand the problem, and then demands a product or service that solves it.

Uber, for instance, built its new category around a simple, clear problem: it can be hard to find a clean, professional taxi or limo quickly, at a fair price. Categories, instead of individual products, have become the most important business driver.

Why? The advent of Agile development coupled with capabilities like Amazon Web Services, mobile devices as platforms and new forms of financing such as accelerators, crowd sourcing and angel investors means that for every problem there are 100 solutions that appear out of nowhere. Brand names you can’t pronounce let alone remember pop up overnight.

The number of choices increases exponentially, making it almost impossible to figure out which product to buy. So categories becomes an organizing principle for customers.

Once people understand the problem that can be solved, they latch onto the perceived most popular solution. This is particularly true for a new generation of customers who have lived their entire lives in the digital era. By 2020, this generation will make up half the work force, driving business purchase decisions. Given all of the product and service choices they will have to make, it’s too hard to research every offering.

So they pick the number one player. Often, that’s from the company that initially explains the problem best.

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