In the prior 2 newsletters, I focused on the fact that if you are a startup – or a product team in a mature company – you must design or redesign a category to participate in. Why? Humans want/need organization and structure. When we are presented with new technology or product, we are comforted when we can see where and how it fits in and stands out in the larger context of life/work as we know it.
The book, “Play Bigger”, goes into depth vis a vis category design and shows statistical evidence that 76% of all profits in any given category inure to the category leader. The authors of “Play Bigger” go to great lengths to show that if you try to enter an existing, well-defined category the category leader controls the “rules of the category” and the likelihood of your startup or new product surviving is slim.
This is why I made category design or redesign the first tenet of the market engineering process. I wrote in depth about market engineering and category design/redesign in my book “Traversing the Traction Gap”. And the following is an example of why category design is so critical.
A Category Defined
One of Traction Gap Partners’ clients is Parlay (www.parlay.finance). Small Businesses account for about 50% of the US GDP. Parlay is focused on building software that helps expedite the Small Business Association (SBA) loan process. If Parlay can help small businesses with the SBA lending process, and the banks that support them, this could have a significantly positive impact upon the US economy.
Parlay offers an AI-native application that does two key things. First, it enables SBA lenders (e.g., regional banks and credit unions) to analyze and process SBA loan applications much faster and more effectively. Second, the Parlay application software guides small business applicants through the somewhat onerous process of applying for an SBA loan (i.e., there are myriad types of SBA loans and all are backed by the Federal Government – so there are numerous regulations associated with them. Many small businesses abandon the application process as a result.
When Parlay first engaged Traction Gap Partners, they told us they were having trouble in sales calls and investor presentations explaining where their software fit in. All banks use a Loan Origination System (LOS) – a system of record – to capture loan applications and process them through loan officers and loan committees. The LOS doesn’t really help SBA applicants but it does help the lender to record and store all the necessary loan documents completed by the small business so that the loan officer and loan committee can make a yes/no decision.
Parlay told us they were typically spending the first 15-30 minutes in a sales call or an investor meeting explaining that they weren’t a LOS – they were “complementary”. But, they didn’t have a name for their category, specific attributes to define their category or any visual aids (e.g., graphics) that showed where they fit in to the loan and LOS process.
We started out, as we always do with our clients, by working with the team to complete a Messaging Matrix. This is a simple document that forces the team to state who you are, what you do, why you are doing it (benefits), competition, myriad facts about the business, and…some prospective category names.
The name of a category is typically 2-3 words that suggest a business problem. Categories we have all become familiar with in B2B Tech include names such as Customer Relationship Management (CRM), Business Intelligence (BI), and Enterprise Resource Planning (ERP). When we first heard these terms, we didn’t really know what they meant but over time, with enough explanation and promotion, they have become part of the well-understood lexicon.
With Parlay, as they are an AI-native application, we worked to come up with a candidate category name – Loan Intelligence System (LIS) – and positioned their application as a “system of intelligence” – complementary to the LOS “system of record” – along with a list of attributes that define the LIS category. We also worked with them to develop a graphic that shows the typical seven steps of loan processing and how Parlay’s LIS fits in by expediting the first three of those steps. We then market-tested this content with various lending institutions, industry analysts, and loan officers. Boom! Parlay no longer spends 15-30 minutes in a sales or investor meeting trying to explain how they fit into the SBA loan application processing process.
The Category Takes Shape
Working closely with the Parlay team, we developed a plan to initially introduce the category using a white paper, participating in various podcasts and conferences, and interviews with the media. Now, if you perform a Google search with the term “Loan Intelligence System” – Parlay comes up in the first returns after a few ads. The category “Loan Intelligence System” is on its way to becoming an industry-accepted and understood category.
Ironically, as we explained to the Parlay team, other companies are likely to enter the LIS category – and we need them to do so. You can’t build a category with only one participant. The challenge is to stay ahead of all the other entrants. There are some other things we are doing now to help solidify Parlay as the creator and thought leader in this new category – but that is the “secret sauce” we use at Traction Gap Partners and we do not wish to share this with Parlay’s potential competitors.
Traction Gap Partners has performed “market engineering” work – beginning with the Messaging Matrix and category design – with numerous companies (startups and with product teams in mature companies) with significant results. If you’re interested in learning more, leave a comment at the bottom of the newsletter and we will reach out to you.
Also, I am in the process of drafting a second edition to “Traversing the Traction Gap”. If you read the first edition and found it useful, I’d welcome an opportunity to interview you so I can share your insights with others. Just leave a comment below or email me at [email protected].