Strategy & Portfolio
Category Creation
Last updated
Quick Answer
A startup defining a new market segment rather than competing directly within an existing one.
Category creation is a strategic approach where a startup defines and names a new market segment rather than positioning itself as a competitor within an existing one. Instead of fighting for share in a known category, the company creates the category itself — establishing the language, the buyer expectations, and the competitive frame that all subsequent entrants must adopt.
The concept was popularized by the book "Play Bigger" and has its roots in the idea that the companies that define categories tend to capture the majority of the economic value within them. Research suggests that category creators take roughly 76% of the total market capitalization in their category, leaving scraps for followers and imitators.
Category creation is not just about marketing or branding. It requires genuinely solving a problem in a fundamentally new way that does not map to existing buyer categories. Salesforce did not position itself as better CRM software — it created the "cloud CRM" category. HubSpot did not sell marketing tools — it created "inbound marketing." Gainsight did not sell support software — it created "customer success" as a function and a software category.
Successful category creation requires three aligned elements: a product that delivers a genuinely new experience, a company that embodies the category vision in everything it does, and a sustained thought leadership effort that educates the market about why this new category matters. Missing any one of these elements typically results in a failed category creation attempt that wastes resources and confuses the market.
In Practice
Imagine a startup called TrustLayer that builds software to automate vendor risk management and compliance verification. Rather than competing in the crowded "GRC (Governance, Risk, Compliance)" category against established players like ServiceNow and Archer, TrustLayer creates a new category called "Connected Risk." They argue that traditional GRC is backwards-looking and siloed, while Connected Risk uses real-time data sharing between companies to create a live, networked view of risk across the supply chain.
TrustLayer publishes a category manifesto, sponsors a "Connected Risk Summit," creates an analyst-facing category definition, and aligns all their marketing, sales, and product messaging around this new frame. Within two years, analysts start using the term, competitors start positioning against it, and buyers begin issuing RFPs that use TrustLayer's language — giving the company an enormous structural advantage in every deal.
Why It Matters
For founders, category creation is the highest-leverage strategic move available. When you compete in an existing category, you are playing someone else's game by someone else's rules. When you create a category, you define the rules, set the evaluation criteria, and position yourself as the default choice. This fundamentally changes the sales dynamic from "why us versus them" to "why this new approach versus the old way."
For investors, category creation is one of the strongest signals of a potential breakout investment. Companies that successfully define new categories tend to build durable competitive moats, command premium valuations, and capture outsized market share. However, category creation also carries significant risk — it requires substantial investment in market education and can fail if the market is not ready for a new paradigm or if the company cannot sustain the narrative long enough for adoption to take hold.
VC Beast Take
Category creation has become one of the most overused concepts in startup strategy. Every Series A company now claims to be "creating a category," but most are really just rebranding a niche within an existing market. True category creation is rare, expensive, and requires a level of conviction and sustained investment that most startups cannot muster. You are not creating a category just because you put a new label on your product.
The litmus test for genuine category creation is simple: are analysts and buyers independently adopting your language? Are competitors forced to position against your frame? If the answer is no, you are just doing marketing, not category creation. The companies that get this right — Salesforce, HubSpot, Snowflake — invested years and hundreds of millions of dollars in category building before it paid off. It is a long game that requires patience most venture-backed startups do not have.
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Comparisons
Frequently Asked Questions
What is Category Creation in venture capital?
Category creation is a strategic approach where a startup defines and names a new market segment rather than positioning itself as a competitor within an existing one.
Why is Category Creation important for startups?
Understanding Category Creation is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Category Creation fall under in VC?
Category Creation falls under the strategy category in venture capital. This area covers concepts related to the strategic approaches to portfolio construction and management.
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