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POTD: A16z Podcast: Creating A Category, From Pricing To Positioning

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What do Klennex, FedEx, and Coke all have in common?

All three products are now universally used to describe a whole suite of competing and secondary products or services.

Kleenex is the word for numerous paper-tissue products.

FedEx is the word to for all overnight delivery.

Coke is the word for hundreds of soft drinks available.

Simply put, don't copy, create. 

It is better to create a new category where you can set price than try and improve a category where the price has already been established.

Creation means there is less competition and more riches to be had.

In this episode of the a16z podcast, general partner Martin Casado, who helped create the category of “software-defined networking” and Michel Feaster, CEO and co-founder of Usermind, who previously defined the category and discipline of “technology business management,” share their insights, in conversation with Sonal Chokshi. 

Category creation is all about creating a net new problem and a net new solution to that problem. This matters because if you create a category, you can set the price, the market size, and set the buying environment.

Of course, this isn't easy. You are asking customers to say yes to something that is new, possibly unproven, not trusted, or well known in the marketplace.

Speakers in this podcast suggest, "it isn’t just about making a dent in the way companies work and changing what people do every day… it’s about setting the price. And with that, comes creating the concept in people’s heads, defining the value, and setting the rules of the game."

As Henry Ford said, "If I had asked people what they wanted, they would have said faster horses."

Sometimes you need to create and lead.

For me, I find pricing to be the biggest challenge of running my business. And frankly, I have done a horrible job. From underpricing service offerings and products due to lack of confidence, knowledge, and experience. Coupled with working in categories with well-established rules and competitors selling "Kleenex, FedEd, and Coke."

When it comes to pricing so far, I have made every mistake.

From these failures, thankfully I have acquired new knowledge. I am firmly committed to the idea that setting the price point is vital because I want to guide the customer to what is good and what is bad. I want to control the customer from having the ability to make a comparison. I create the category. 

Simply put, being an entrepreneur and thought leader.

To do this, you need to execute these two things: First, you have to create the concept in the customer's brain - you need to get the customer to think about the problem and realize you have the solution. Second, you need to set the value by setting the price.

Creating an environment where the customer sees the world differently, recognizing there is a problem, and leading them to your tool to solve this irritation. That's the winning sales cycle.

Think like a storyteller and use narrative: Frame the problem, then make it top of mind, and finally set the value (price) to fix the problem.

Reinforcing with the marketplace that your differentiator is the right way to go - how you solve this problem is unique, better, and different and your unique, better, and different is defensible against the competition. 

Ultimately you want to create a buying environment where the customer sees you as the only solution to the problem, and there are compelling reasons why it is you.

When you realize business is a long game, and you can build a model that lets you survive long enough, coupled with teasing apart the signals from your first customers, and finally nailing some key moves early by setting the buying requirements… you can win.