Software Category Strategy: Inside our Out?

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When talking about Software Product Positioning, the question is coming up sooner or later.

Which category does our platform belong in?

It’s often a heated, long-term debate. Lots of opinions, inside-out views, and hindsight rationalization about the current customer base. All until someone raises their hand and asks if we should be in a category at all…

Why is it important?

Picking the right software category to be included in is very important throughout the lifecycle stages of your product. Whether it’s to enter the consideration set of your target audience or to create a strategic moat to make it harder for your competitors to take your market share, picking the right product category can be decisive.

The target audience for your product had a certain need, some jobs-to-be-done. Your product translated those in features and combined them into a feature set, that now needs a specific tag to specify which kind of product you’ve actually built so you can attract more customers. You need to work on your market positioning.

When your prospects start looking for a tool, they will probably have a software category in mind together with a few companies that are dominant in the market. It is the goal of your marketing to be included in that consideration set by being in the right field or even being the top-of-mind brand of the category.

The Software Category Analyst Industry

So, your target audience wants to solve their problem and like every solution to a problem, it starts with a Google search. Having done tons and tons of keyword research, the patterns are always the same. The type of searches people do are in one of these categories:

  • Problem: “how to organize employee benefits”
  • Solution: “employee benefits administration”
  • Category (& niche): “employee benefits administration software for SME”
  • Brandname: “Zenefits”

There’s a lot to be said about all of those, but here, I want to zoom in on the ‘Category’ searches. It’s important to understand what people will see when they search for them.

Search Results for ’employee benefits administration software’.

The chances are high that for those kinds of searches, the Search Engine Result Page will be filled with these search results:

  • Paid Search Ads by individual platforms in the market or big software review sites.
  • Organic Search Results by big software review sites or audience niche sites that list the beste software in the category.
  • Google’s Feature Snippets taken from the above organic search results.

With the constant amount of people looking for software to implement within their business, a big industry of Software Category Analysts has grown. The field exists of research firms like Gartner and Forrester, peer review sites like Capterra and G2 (although this categorization isn’t binary), and niche publishers creating informational content around categories.

All these pieces of content and lists guide and funnel the buying process for a big part of your target audience. You’re either in them or you’re not and just like with classic SEO, the position and content matter. That means that your category choice trickles down into a cascade of media placements to be involved in. All of this has grown into its own professional field including efforts like lobbying, media buying, PPC management, and review gathering.

It is at this moment, when you’re being faced with the head-to-head competition within a software category, that the idea often is surfaced to think outside the box and position your product as being a category of its own. But is it a good idea?

Software Category Creation

The idea will be depicted as the holy grail. Someone will mention the Blue Ocean Strategy and another will talk about the fields of gold that await when the strategy is successful. It’s good to take a step back and change that ‘when’ into an ‘if’. Because if anything, it is a high-risk ,  high-reward strategy. And it is a long and winding road to travel.

The high reward is of course attractive and the examples of the companies that pulled it off are very well-known.

  • HubSpot created Inbound Marketing
  • Salesforce created Cloud CRM
  • Gainsight created Customer Success

But probably none of those will tell you that it was easy. Gainsight’s CMO and CEO will even tell you that it is too difficult.

Why should you do it?

There are definitely great benefits if you manage to create a new category. All to be gathered under the umbrella that your target audience cannot compare you to anyone else.

  • You don’t have direct competitors.
  • You don’t have existing standards for features.

But beware, those benefits will not last forever and only come to those that successfully create and dominate the category. That last part is as important as the first.

What does it take?

Ever had a difficult time creating brand awareness in an existing category? Imagine not being able to support yourself with the grips of people understanding what you do anyway. It’s possible but you’ll need a few things.

  • Excellent understanding of your target audience Jobs-To-Be-Done 
    The premise is that you are seeing the needs of your audience 10x clearer than your competitors and therefore have a better solution ready.
  • A huge amount of money (time & resources) to be spend on Awareness Creation 
    If you don’t have a huge runway, forget about category creation. You’ll run out of money before people understand your narrative.
  • Focus and Speed of execution after the initial decision 
    If you are right about creating the category, you’ll have to outrun a competition that has deep pockets as well. It’s the early bird that catches the worm, but it’s the second mouse that gets the cheese.

A great start to planning category creation is this blog post by LaunchNotes.

Winning a Software Category

Now that I’ve scared you enough about creating your own category, I’m obliged to show you the alternative route(s). What can you do to gain market share within a certain software category? I would advise putting your focus on one of the three disciplines:

  • Find a niche: Pick a segment of the market, discover how their needs are different and solve the problem better for them. It will increase the relevance of your product and that way make marketing it to them easier. Analyse if the Total Addressable Market is big enough before entering though.
  • Be cheaper: Make sure your business is highly efficient. Ruthlessly saving costs within an existing product-market fit might make you the low cost option and win the pricing battle.
  • Be faster & better: Winning the full category is a battle of innovation and execution. Find the new feature that will define the next frontier in this category and bring it to market sooner & better than your close competitor.

Of course, life will never be this black and white. Everything in strategy (as in life) consists of trade-offs. It’s not about a silver bullet, it’s about balance. Don’t do too little, don’t do too much.

And second to that, those are just high-level decisions. You’ll need to beef and execute this strategy further, but this blog post is not the place to go into this.

What should you do?

By now, you might be under the impression that I’m advising against category creation. I’m not. I just want to give you the ammunition for when ‘Category Creation’ is being thrown on the table as an easy way out when it comes to product positioning because it is quite the opposite.

It is one of the (very simplified) 4 ways you can take your product in order to grow.

When thinking about this, I can’t help but be thrown back to my old school marketing training and more specifically The Ansoff Matrix that shows the different ways in which a business can grow.

This model shows why category creation is such a high-risk, high reward strategy. It depends on two huge assumptions to be right:

  • There is a market that is big enough and currently underserved.
  • This market needs a totally new product and not just a variation of the current product.

Both of those events coming together and you being the only company that caught it out is a very unlikely thing to happen but one we like to believe. Which means:

For most companies, category creation is not a good idea.

Deeply understand the situation you’re in and then make an educated decision on strategy.

Further Reading

Again, this is a blog post, I just merely scratched the surface of this topic. If you want to learn more about this, I would suggest reading these great books on product positioning:

Playing to Win: How Strategy Really Works

A great book from A.G. Lafley, former CEO of Procter & Gamble that offers a kind of playbook to think about market strategy. It’s not about software, but the patterns are the same.

Obviously Awesome: How to Nail Product Positioning so Customers Get It, Buy It, Love It

Written by positioning guru April Dunford, it’s very readable, understandable and straight to the point.

The Four Steps to the Epiphany: Successful Strategies for Products That Win

Although more relevant to early startups, this book by Steve Blank helped me a lot in developing a framework to think about market and product development. 

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