The popular lore of Silicon Valley goes something like this: a starry-eyed engineer is thinking about a new technology. Suddenly it hits them: the product. It's a lightning bolt from a geeky Zeus, the idea striking them like a divine burst of code from above. Inspired, they program in a basement for a few months. When they emerge, their product is immediately beloved.
This narrative is false. It is close! But it isn’t reality.
There is still the magic. There is still the bolt of lightning. But, as any student of the Greek classics could tell you, Zeus is promiscuous with mortals. When the founder emerges with a new product, they often find, to their horror, that other people came up with similar products at the same time. Sometimes the problem they set out to solve is already served by existing products. Other times they are fortunate enough to have a first-mover advantage for a short while. Almost as a rule, copycats emerge as soon as you have your breakout moment.
This problem is acute in SaaS where it is exceedingly rare for there to be true product moats; many startups end up competing on distribution and positioning. The winners are determined by answers to questions like: Who can have the lowest acquisition cost? What company has the most brand affinity?
"A product that owns a category can beat a great rival."
As Robert F. Smith, the founder of Vista Equity, famously said, “All software companies taste like chicken. They’re selling different products, but 80% of what they do is pretty much the same.” If we keep to this metaphor, we know the critical place to focus is that 20% differentiation. During these difficult economic times, it is more important than ever to frame your product in a league of its own. This is the only way to create outlier companies.
These types of questions are especially salient right now. Investors are more stringent with their capital, and customers are warier than ever about adding yet another SaaS tool to their budget.
I believe that the answer to these problems is simple: product positioning. Product positioning is the delicate alchemy of mixing customer obsession and marketing. When done right, the result creates a new software category. And a product that owns a category can beat a great rival.
Category creation is especially important in this most recent AI boom. There are hundreds of AI companies being created every week, many of which sound extremely similar, and they’re all competing to ride this new wave. These companies will experience similar problems to the cloud software providers of the 2010s: trying to differentiate in a crowded field.
The best product doesn’t always win; but the best-positioned product can take you to another level.
Product Positioning in Practice
While some of the examples below are older, the fundamental lessons remain unchanged. Here are three examples that drive home the importance of positioning:
Runway vs. Incumbents: Let’s start with generative AI, the hottest sector right now. Runway (we led their Series C, and I sit on the board) is getting so much attention from the most visionary creators, including helping them win Oscars. Even as incumbents like Adobe release their own AI models, Runway has come out strong to establish and own the category of the “Generative Suite.” They’re doing this with a combination of a deft communications strategy (with results like landing on the front page of the New York Times), community events like their film festival, regular impressive product releases, and celebrating and sharing incredible user-generated content. Cristóbal Valenzuela, CEO and co-founder of Runway, has done an outstanding job defining and defending this category by being an eloquent spokesperson for the company's vision and the effect this wave of technology will have on culture.
- Creating a category in a hot market requires a multi-pronged effort and a willing spokesperson. You won’t get traction if you’re just selling your own product, though; you have to engage with your audience and the media on the topics they care about.
Yammer vs. Jive: This is one I have feelings on—I was at Yammer as CMO. Jive was the enterprise darling and told prospects Yammer wasn’t secure (“that viral, free offering will never be trusted by enterprises”). They used this line to deposition us in every sales conversation we had. So I took our perceived greatest weakness and turned it into our greatest strength.
We started to position them as software only your grandparents would use because Jive required that IT provision it. We also pushed this point by launching a microsite that illustrated our innovation. We named our product development approach the “data-driven development methodology.” This approach drove our weekly releases and often made IT nervous, and I made the whole term up.
I launched a microsite to establish this new way of developing software as the future. It empowered our entire company, but most importantly, our sales team - they could position us as the innovator, and anyone who didn’t develop product using this methodology was old school. The WSJ, NYTimes, and several publications covered it; it was that exciting. Jive became irrelevant. Yammer was bought for $1.2B to make Microsoft a cloud player alongside Azure.
- Never run from your weaknesses. Understand them, and turn them into your core strengths. Jive could never release on the same schedule as us because of the difference between cloud and on-prem development cycles.
Salesforce vs. Siebel: Salesforce and Benioff have always been masterful marketers. From hiring fake protesters in front of Siebel’s customer conferences to renting buses that drove past Siebel’s HQ with recruiting signs saying the employees “had no future” there.
- The lesson is to be aggressive. Product positioning is a game of hardball—to win, you must be willing to directly counter-position against your competition.
- It is particularly effective to position other players as “the old way of doing things” (in this case, Siebel being on-prem) as antiquated—and find champions for the new way (cloud).
Whether competing on a novel technological front or on the same playing field, positioning—irrespective of the new category—is what can lead you to win.
Category Creation is an Earned Privilege
Founders are frequently tempted to start category creation right away. But going slower, as Notion—another Felicis company—did can be the smarter tactic. My friend Camille Ricketts (who led marketing at Notion from the beginning) and I would generally advise against starting with a new category for the get-go. Starting from a position of familiarity can make closing those early sales much more straightforward and allow customers to both visualize and describe your product organically.
Saying you offer X product for Y market may be cliche, but it is pithy and understandable. Early in Notion’s life, Camille often described it with the shorthand: “It’s as if you had Airtable, Google Docs, Asana, etc. combined into one.” It took time for the term “digital workspace” to catch on and become mainstream. It had to be used repeatedly alongside analogies that people could actually picture first. The same thing happened for Yammer—when we started, we just said we were “Facebook for work.” That helped us initially take off—it was a familiar starting point for our customers.
Doing product positioning right isn’t just a matter of slapping a new label on your product. It requires a careful understanding of what value your customers are getting. When considering new nouns to describe what the product does, generate a list of 5 to 10 and run them past your most supportive customers. If all you are getting is blank stares, then it might not yet be time to define your category—your product should be good enough to draw excitement out of early advocates. Apple is notorious for testing marketing with focus groups, and I did similar work while at Salesforce.
"Internal marketing is the difference between a successful category creation and a total dud."
Another rule of thumb as you search for the name: keep it simple. Envision a group of potential customers gathered together and chatting. In their conversation, they will ask, “What are you using for your [CRM / Revenue Intelligence / Insert your category here]?” If you can’t envision your customers saying your category name with a straight face, go back to the drawing board.
Once you have product-market fit and a name for the category you think will resonate with customers, the last and arguably most important step is getting your team on board. Internal marketing is the difference between a successful category creation and a total dud. You’ll need to hold an all-hands call to reveal the new messaging, train all the employees, update the website, pitch decks and case studies, chat with customer ambassadors, do community events, and more. It’s a ton of work. It will take ten times longer than you think it will. Getting your team on board for this process requires careful thought and planning. You’ll have to reiterate the new category repeatedly and how important it is. On average, you’ll have to repeat a message 20x before it sinks in. I still remember the slides we created on the creation of Cloud Computing and the new era that it would usher in, led by Salesforce. Marc repeated the messaging so much I can still recite it to this day.
This period of transition is uncomfortable for many entrepreneurs. Going from “we are X for Y” to “we are Z” is always hard. It’s OK. Lean into that discomfort and know you aren’t doing anything wrong if you feel slightly panicked at the change. there is a critical tipping point where the previous adjectives you used no longer capture a significant portion of your product’s capabilities.
When category creation is going well, you’ll see the typical marketing outcomes: increased leads, more time spent on page, and content shares. But perhaps the biggest sign it is working? When your competitors start using it too. At this point, double down. Go even harder with the category. Layer in events, launch a new email strategy and have more content and customer stories. Customers are savvy; they’ll figure out who the original is. Your content and positioning will be that much better than your peers.
I’m always excited to talk to founders about their product's position and the potential category they could create. Please reach out if you think you’re building the next category-defining company.