0:00
The point being, now is the greatest time in history to be a creator, to be an entrepreneur, to be a marketer.
Search this video
0:04
I've been a marketer for my entire adult life.
0:04
It's never been greater than it is right now.
0:09
And so here's the big thing that I would share.
0:09
If you are somebody for whom you want to make an exponential difference, you want to innovate, you want to create new value where there wasn't, you want to have a legendary career where you could look back on your career and go, you know what?
0:24
I was part of this and that, and I was on this team, now's the greatest time in history.
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And what I would say to you is, the future needs you.
0:32
Welcome to Lenny's Podcast, where I interview world-class product leaders and growth experts to learn from their hard-won experiences building and growing today's most successful products.
0:43
Today my guest is Christopher Lochhead.
0:43
Christopher is a 13-time number one bestselling co-author, including books like Play Bigger and Niche Down.
0:49
He's also a popular podcaster, co-creator of the excellent Substack Category Pirates, and is best known as the Godfather of Category Design.
0:58
He's also an advisor to over 50 venture-backed startups, and a former three-time public company CMO.
1:04
In our conversation, we dig deep into all things category design, including what exactly is category design?
1:10
Why, in order to build a legendary business, it's so essential to build your own category versus trying to become the best in an existing category.
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Also, how to actually go about creating your own category.
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A ton of examples of companies that did this well and didn't do this well, what we could learn from them.
1:28
Plus a ton of practical frameworks, including something Chris calls The "Better" Trap.
1:32
Also, why he thinks product market fit is a very dangerous idea.
1:37
Chris is such a character and I had such a blast speaking with Chris.
1:37
With that, I bring you Christopher Lochhead after a short word from our sponsors.
1:48
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3:36
Christopher, thank you so much for being here. Welcome to the podcast.
3:40
Lenny, it is my absolute joy.
3:40
And let me say in case my ADHD brain forgets, I love all things Lenny.
3:46
You're doing a great job, buddy. I'm honored to be here.
3:54
And there's so many people in the entrepreneur startup marketing world who are scam artists, shysters, pieces of shit, idiotic hustle porn stars yelling stupidities.
4:02
There's a lot of idiocy in the world in which you travel and I travel, and you, sir, stand out.
4:10
You are making a difference.
4:20
The conversations you're driving, the content you're creating.
4:20
You're fucking awesome, Lenny, and I'm really stoked to be here with you.
4:25
Damn, what an intro to my own podcast.
4:25
I'm bad at accepting compliments.
4:30
I'm just going to accept that and I appreciate that, man. No, you need to get it.
4:34
You are a beacon in an ocean of crapola. You are incredible. Well, enough about me. I really appreciate it.
4:41
I was preparing for our conversation and usually what I try to do when I prepare for conversations is I read everything the person has written and it was very challenging with you.
4:51
You have two podcasts, you have at least six books.
4:51
There's probably more I missed.
4:56
You have a newsletter, you tweet a lot.
4:56
There's probably a lot of other stuff I didn't get to.
5:00
And so you made my job very difficult preparing for this podcast, but also very worthwhile. So I'm excited to begin. I apologize for that.
5:08
The other thing I noticed as I was browsing your website, and it was hilarious because you have all these testimonials of your book and podcast and you have a lot of negative reviews, like "Off-putting, or, "Very disappointing," or, "Absolute crap."
5:19
I'm curious why you chose to do that as your website testimonial wall.
5:26
Well, and I believe, I'd have to check with Steve Osler, the founder and publisher of Podcast Magazine, but I believe I'm the only podcaster in history to run a full page ad in Podcast Magazine with just negative quotes in it. So a couple reasons.
5:44
Number one, can we all just have a sense of humor about this stuff?
5:51
So it's my way, and the name of our team, yet we're sort of a company, but we're more of a band, is Category Pirates.
5:57
I mean, clearly if you're called Category Pirates, you're probably trying to have a little bit of fun with this stuff.
6:02
And so part of it is just trying to have a sense of humor with people.
6:07
The second piece of it is, for a lot of entrepreneurs, marketers, creators, innovators of any kind, we live in this fear that when we launch our thing, whatever our thing is, that we will be criticized by the world and that we will be made fun of.
6:26
And if you've ever authored a book or done a podcast or done anything, built a product, a software product, built any kind of a product that you feel is part of you, and most innovators, creators, software developers, artists, of course entrepreneurs, feel that way because they put themselves into this stuff.
6:43
And when somebody criticizes us, many of us are devastated.
6:49
And I have been in the past too.
6:49
I'm a person just like anybody else.
6:55
And what I realized is, fuck them.
6:55
Anybody who's trying to do anything exponential, anybody who's trying to break and take new ground, anybody who's trying to radically innovate, anybody who's trying to design and dominate new categories of the way we live, work and play, gets criticized.
7:11
Picasso was called stupid.
7:11
The Beatles were called terrible.
7:11
Elvis was called terrible.
7:17
I just wrote recently a little bit about hip-hop.
7:17
I was listening to Rick Rubin on Barry Weiss's podcast, excellent episode. Excellent.
7:24
She does a great job with him.
7:30
And he was talking about how ridiculed hip-hop was in the beginning and it got banned.
7:30
And it's the number one category of music in America today.
7:35
Anyway, so that's also part of it, is to just sort of say, "Hey, look, this is some of the shit people have said about our work and my work, and I'm going to just put it on display, because this is going to happen to all of us."
7:49
And then I guess, Lenny, the third reason is in the creator world, broadly, there's a lot of people who are breaking their arms patting themselves on the back.
8:00
And look, I understand why we have to tell people about why they should pay attention to us, and so we use our credentials or our awards or our downloads or our books, I understand that, and I do a little bit of that too.
8:09
However, come on, let's just not take ourselves so seriously. Amazing.
8:16
I could definitely use more of that skill of not taking negative feedback as seriously.
8:22
And I love the idea of just embracing it and showing people what people don't like. Why not?
8:26
I mean, look, you're incredibly successful and if somebody says something negative about you, okay, great. Fuck them. They're not your people. Fuck them. There we go.
8:38
I didn't know who you were until Substack, and I saw your logo, the fiery logo, and there was something endearing about your logo.
8:42
And the other thing that's great about you, from a radical differentiation marketing perspective is, you call yourself Lenny.
8:54
And when I talk about you, I don't know your fucking last name.
8:54
I mean, I sort of know it, but I don't really, you know what I mean? Yeah. It's hard to pronounce.
9:03
Actually, I was at the gym this morning and I was telling my buddy that we were doing this, and I said, "Oh, I'm going on Lenny's Podcast." He says, "Lenny who?"
9:10
And I said, "It begins with an R. I don't know.
9:10
Everybody just calls him Lenny."
9:16
And so the fact that you are yourself, you don't play a character, you're not a douche, you're just a person trying to be successful in the world and help others, right?
9:28
That's a very powerful thing.
9:28
And I think one of the things that is insidious about influencers, hustle porn stars, part of the business model is creating the perception of superiority, right?
9:45
The reason Grant Cardone and Tai Lopez and all these douchebags pose in front of planes and all this garbage is they want you, the Kardashians are the queens of this, they want you to look at them and go, "Oh, wow, don't I wish that I was them."
10:03
And so these folks are in the create and monetize envy business, and you're the opposite of that.
10:12
And I think the legendary educators in the native digital world are the opposite of that.
10:12
Anybody who's creating separation, anybody who's putting themselves above, anybody for whom there must be, "I must be the leader, and you must be the follower," that's the business model of a massive amount of people in the native digital world, and we reject that. And I know you do. Absolutely.
10:34
We've already gotten way off track, but I love it.
10:34
I'll just say one thing and then we'll get back on track.
10:39
The reason I called my newsletter, Lenny's Newsletter is because that was the default recommendation Substack gave me when I signed up.
10:44
They're just like, "Call it this."
10:47
And I'm like, "Okay," because I don't know, I didn't have no plans to actually be doing this long term. And then it just stuck.
10:51
And then I brainstormed for weeks.
10:51
I'm like, "I need a real name on this thing."
10:55
And I just couldn't think of anything that I liked.
10:55
So I'm just like, "All right, I'll just roll with it."
10:59
And then when the podcast launched, I tried so many ways to call it something else so that it would push the whole naming in a different direction, it wasn't about me, but I couldn't think of anything better.
11:08
So I'm just rolling with it at this point.
11:12
Well, and the interesting thing is, even though the branding of the shit has your name in, it's not about you.
11:20
That's the irony, right?
11:20
Meghan Markle gets canceled. Why?
11:28
Because it's about her, and it turns out she's infinitely uninteresting.
11:35
I've consumed enough of your content to know that the cool thing is, yeah, it's called Lenny, but it's actually, you are not trying to impress all of us with how awesome you are in front of a fucking plane or a bunch of scantily clad people, or I don't know what. It's true.
11:53
Well, I'm enjoying this podcast. You're very kind to me.
11:53
Let's talk about the meat of what I want to chat about, which is your bread and butter category creation.
12:04
It goes without saying you're a big fan of creating your own category versus what most people try to do, which is try to compete in an existing category.
12:09
So just to kind of lay a little foundation, can you just explain what this actually means, this idea of category creation for people that have heard this idea in this term, but don't really know what it means.
12:22
It turns out that in business, most people, and in life for that matter, make a unquestioned, unconsidered, undialogued, unthought of decision that they don't know they made.
12:39
And the decision they make is, "What I'm going to do, is I am going to compete in a market with demand, with a better product/service/brand, maybe a better business model, maybe a better set of growth hacking ideas that I learned on the Lenny Podcast.
13:06
And when the world gets my better, the world will beat a path to my door."
13:16
And if you go onto Amazon right now, Lenny, there's roughly a hundred thousand marketing books, and I think I'd have to double check, but I think there's about 60,000 or 80,000 business strategy books.
13:27
And of course, me and my collaborators, we haven't read all of them, but like you and like many of us in business, we've read many of the tomes, the Bibles out there, and there's an interesting thing about virtually all of them.
13:45
That's what they're about.
13:45
It's about how to compete and win. Well, here's the aha.
13:53
Nobody legendary ever did that. Not a one.
13:53
We all know who Bob Marley is.
14:04
We don't know who the 17th greatest reggae musician or band in the world is.
14:11
We all know who Pablo Picasso is.
14:11
We don't know who the fifth greatest cubist artist is.
14:20
And so wherever you look in life, whether it's in the business world, people who drive social change, artists, creators of any kind, the people that we tend to admire the most are the people who broke and took new ground.
14:35
And the aha here is the category makes the product, the category makes the brand, the category makes the company.
14:51
So I'll give you the data and then I'll fully answer your question. So here's the data.
14:58
We did an analysis for our first book where we studied every venture-backed tech company in the US from 2000 to 2015.
15:04
And we asked a question that, to the best of our knowledge, had never been asked before.
15:12
And we went to Stanford and we asked a bunch of professors this question, and they said, "We don't know this.
15:16
You're going to have to do it yourselves."
15:16
So we did, and incidentally had it peer reviewed and published in the HBR.
15:21
And if you've ever gotten data published in the HBR, then you know what it's like to have a journalistic proctology exam.
15:31
Anyway, here's the net of it.
15:31
In tech market categories, on average, one company earns two-thirds, 76% to be exact, of the total value created as measured by market cap and or valuation.
15:47
So not market share, which is important, market cap as measured by the value of all the companies in the category.
15:54
So you take a category, you add all the companys' value together, and you say, "What percent goes to the leader, the category, queen or king?
16:04
And what percent goes to everybody else?"
16:04
One company, two-thirds of the economics.
16:12
So the aha here, Lenny, is when we make the unquestioned, unconsidered, undialogued decision that we didn't know that we made, to compete, we have unwittingly said, "We're going to fight for the 24%."
16:27
And it's the distinction or delta between create demand and capture demand.
16:39
So we prefer the term category design, and I can explain why design instead of creation, we don't have anything against creation, but creation creates a confusion in people's mind.
16:52
When people hear category creation, because most people in business, most people in tech, are strongly oriented to product, what they think you said is first to ship a product that has X features.
17:04
So when most people say category creation, that's what they think.
17:10
They say, "They [inaudible 00:17:16] category, Myspace did."
17:17
Or if you've been around for a little while longer, "GeoCities did."
17:22
And so category creation, category design, does not equal first to ship a product with a set of features. So what does it equal? Here's the aha.
17:28
Just like you can design a product, just like you can design a company culture or business model, you can actually design a market.
17:46
And in so doing, you create a new distinction in value for people that didn't exist before.
17:57
I'll give you a simple example.
17:57
If I could own any product in the world right now, I think I'd probably want to own Purell.
18:08
And there's a great thing about the company that makes Purell.
18:08
The company's been around for a very, very long time, and they're owned by the original family that created the company.
18:24
Their original problem that they were solving is, it was a husband and wife team, and they were working in a factory.
18:29
This was 80 plus years ago.
18:29
The company, by the way, is called Gojo Industries. Gojo.
18:37
And Gojo is a portmanteau, putting their two names together.
18:37
I think it was, maybe it was Gloria and Joseph, or I'd have to double check the husband and wife names, you'll excuse me, but the company's called Gojo Industries, and I think the granddaughter runs it today, if I'm not mistaken.
18:52
Anyway, so the gal, the wife said, "This bar soap is disgusting.
19:00
It's full of crapola, it's hairy, it's full of man nastiness."
19:00
So the solution to washing your hands called a bar of soap was a disgusting, inappropriate solution for her.
19:17
So she reimagined the problem, not as, "How do I wash my hands," but as, "How do I wash my hands without a disgusting bar soap?"
19:28
And Gojo Industries created a whole new category called liquid soap.
19:35
And in most restaurants, most corporate bathrooms, most airport bathrooms, if you start paying attention, you'll see the Gojo logo on the squeezy thing that you pull when you go to get the soap.
19:49
So unlike most innovators and entrepreneurs, who get obsessed with the solution, and I understand why, we all love our shit, we all love our product.
20:00
If you want to talk to me about our shit, I want to talk all about it.
20:05
We could do a 12-hour deep dive on all your content and how you built the newsletter, and you'd love it. It'd be great. We all do.
20:09
If you're a creator of any kind, entrepreneur, innovator of any kind, you love the thing you're creating, of course.
20:19
However, Gojo focused on the problem, not just the solution.
20:19
So they stay obsessed with the problem, and then they ask a different question, which is, "How do I wash my hands in the absence of water?"
20:39
And of course, the answer to that question is a new category, [inaudible 00:20:44] hand sanitizer.
20:43
And the dominant brand, of course is Purell.
20:49
And so the aha here is the company that designs the space and gets it to tip at scale.
20:56
And when I say designs the space, what I mean is specifically gets a meaningful percentage of the world to agree with their definition of a problem set, which then leads to their definition of a solution set.
21:09
The company that does that at any kind of scale, wins.
21:18
And so the number one question for any entrepreneur or any creator at all is, "Do I want to compete for 24% of an existing market category?
21:27
Or do I want to create my own where if I can execute, I will earn two-thirds of the economics?"
21:33
That's the decision that most entrepreneurs make, that they don't know that they made.
21:41
And at its heart, category design is about the most radical kind of differentiation.
21:47
So most companies actively seek comparison.
21:59
If you go to, well, if go to many software company's website right now on their homepage, you'll see a Gartner report or a Forrester report on their homepage.
22:13
You'll see ads and/or content that say, "Here are three competitors and a list of features," and there'll be 25 features, "And then there's us," and there'll be 125 features.
22:25
And they're actively inviting comparison.
22:25
You even hear it in ads.
22:25
If you listen to what marketers say, Lenny, we say the stupidest shit.
22:33
Don't take our word for it. Anyway.
22:40
And so the legendary innovators over time, they did not compare their innovation to the past.
22:50
They broke and took new ground.
22:50
They wanted to be irreplaceable.
22:50
They wanted to be so much value in the minds of customers that not only were the switching costs horrible, switch to what?
23:07
To follow this thread a little bit, companies that you're pretty familiar with, maybe just a rapid fire sharing of their category to give people a concrete sense of what does it even mean to have a category? Okay, let's go.
23:21
It's becoming obvious that they basically all came up with a different category that they wanted to win.
23:28
And so Gong comes up as an example.
23:28
I don't know if you know about Gong. I think they- I do.
23:32
So it's basically like sales analytics is what they pitch, is like, this is the first thing you can ever do to understand how your sales team is doing.
23:37
Is there anything you know more about their approach?
23:40
Yeah, I know the space very, very well, and they did something incredibly smart.
23:44
So they were a little later in the space than some others.
23:51
And so there were a whole bunch of companies in today which you could broadly refer to as the revenue space, right?
23:56
In the spirit of full disclosure, I'm familiar with Clary.
23:56
I'm good friends with Andy. I know the team.
24:02
I've done some work with them. So all disclosure.
24:02
Clary, and a handful of others, in the beginning started to create the space that ultimately became RevOps.
24:17
And the interesting thing that Gong did, very smart, was as RevOps started to emerge, they were smart enough to realize that revenue was going to be a big new important space.
24:24
That CRM didn't actually do it.
24:32
That ERP didn't actually do it.
24:32
BI didn't actually do it.
24:32
And so there was this sort of emerging set of thinking around, "We need a different approach to revenue."
24:43
They were smart enough to realize that if they went for the whole enchilada, it's not credible from a startup that you're going to go build, that you're going to show up and say, "We have a suite that's equivalent to that of SAP, just for this other area."
24:57
So they picked off a very tight part of a broader emerging category, and they executed incredibly, and they dominated that part.
25:07
But here's the mistake they made.
25:15
In all new mega categories, they start like this.
25:15
This is exactly what happened in CRM.
25:15
I could walk you through the history if it matters, but there were companies in support, there were companies in help desk, there were companies in sales, there were companies in marketing, and there were a whole bunch of sub-niches underneath that.
25:28
There was a point in time in the Salesforce automation category, when that was a standalone category, that some of the hottest companies in that category were sales configurator companies, a further down niche.
25:44
And so as these mega spaces emerge over time, no one company can fulfill the needs of a customer.
25:50
And so there's all these niches.
25:50
The mistake that Gong made, as well as the vast majority of others in that space, is they stayed in their micro niche.
26:04
So the strategy in the beginning that was genius and exactly what you should do as a startup, all of a sudden, when they didn't expand and set the agenda, the design for the big category, they got fucked.
26:21
Because now they're niched.
26:27
And there's a big learning in this Lenny, which is, if you're a company that's already up and running and you're winning, and let's say you're becoming the category queen in your space, every entrepreneur, every CEO, faces a fascinating moment.
26:39
If they become successful in the first five years or so, which is they realize their biggest barrier to growth going forward, is their current category, because you can only be as big and successful as your market category.
27:02
And so you have to continuously expand the vision for the category and continuously build on that.
27:10
And if you don't, and somebody else frames, claims, and names, the bigger agenda, as has been the case, and look, I'm biased, as has been the case with Clary, Clary's crushing everybody in this space right now, and the Gongs and all the other players are now in this horrible position, which is they basically only have two choices.
27:34
One, they can stay in their niche, which is what most players do, and they argue best of breed "Oh, well, we're the best revenue carbodingulator.
27:40
And you could go buy an end-to-end revenue platform.
27:46
But if you do that, you won't get the best functionality in the carbodingulator space.
27:51
So buy our revenue carbodingulator." That doesn't work.
27:58
Microsoft proved it over 30 years ago, and we can talk about that if you want.
28:04
Microsoft proved it over 30 years ago, and we can talk about that if you want.
28:04
You either stay in your niche and get diminished over time, or you uplevel and you go to play for the whole enchilada.
28:13
The problem is for them and all the others in this space who didn't do that, if they were to do it today, well over a year after Clari did, they're just a Clari copycat.
28:29
And so basically you either go compete with Clari for who can be the category king, or you stay in your niche and get diminished over time.
28:36
And if you're going to go compete with the company that is laying down the category design that's picking up the most momentum for the overall market, you better know how to do a fifth dan black belt category wars.
28:58
Following that thread, there's a bunch of threads I'd love to follow, but something I definitely wanted to touch on is, in this concept of the better trap, which is where most people go, where they try to be the better solution in an existing category.
29:07
And just to reinforce that point, what have you seen?
29:12
What have you learned about just why that is often, and maybe always the wrong approach?
29:16
Let's take a very current example, Threads.
29:21
We just wrote about this.
29:21
When Threads came out, and I can show you all the headlines if you want to see them, New York Times, nevermind tech... All these places.
29:29
Twitter killer, Twitter killer, Twitter killer, Twitter killer.
29:36
And at the time there's all this discussion of Musk and Zuck having a UFC cage fight.
29:42
And so there's all this buildup into the launch of Threads and there's all this supposed Twitter hate, and, quote, unquote, "Everybody's leaving Twitter." All right. So Threads comes out. What happens?
29:56
Threads surpasses GPT as the fastest growing app ever.
30:08
Now the headlines, Lenny, are coming. This is it. Zuck's a genius. It's incredible.
30:08
And by the way, this sits inside one of the newer stupid axioms in Silicon Valley.
30:24
So this is a side note, but when somebody says something in Silicon Valley that enough people think, "Yes, that's smart." They just parrot it.
30:29
They don't actually think about it.
30:36
There's a current thinking in Silicon Valley, and this was real loud as Threads was coming out, this was the reason why Threads was the Twitter killer.
30:46
What you need, Lenny, is brand and distribution.
30:46
That's what you need, especially distribution.
30:55
I would assert to you that Threads had the greatest distribution advantage of any new piece of software ever launched.
31:04
If there's another one that has a greater distribution advantage, I'd like to know what it is. No, that seems right. Seems right.
31:15
Massive distribution, incredible, easy up and on, incredible.
31:15
Free product, not even freemium, free. Awesome.
31:23
And Facebook Meta, you tell me, one of the 10 most powerful brands in tech? Absolutely.
31:31
How many users does Facebook have today, Lenny, do you know? Over a billion? Might be more.
31:37
How many billion person apps have there been in the history of apps? None. Right. I think.
31:43
Legendary brand, the greatest distribution advantage in history. What happened? It cratered. It's gone.
31:54
It's still there, but nobody's there.
31:54
They're launching the [inaudible 00:32:00] soon so they have another shot. Oh yeah.
32:00
Now why, why did that happen?
32:06
Why did one of the richest people in the history of the world, who's potentially one of the smartest people in the history of entrepreneurship in tech, fail so miserably when the entire world said he was going to "kill," quote, unquote, Twitter?
32:19
And after the initial, quote, "success" of Threads everybody said that's exactly what was going to happen.
32:25
And now all those experts are surprisingly quiet.
32:33
The legendary Kevin Maney said that category design is a new lens on business. It's a different lens.
32:39
It's sits next to the product lens, it sits next to the competition lens, but it is equally important.
32:45
So here's what happened with Threads.
32:54
They attacked an existing, well-known, well understood, incredibly well-defined problem with a direct copy.
33:04
They even were celebrating that it was Twitter, just better.
33:04
They said virtually those words.
33:12
So known existing problem with a known existing solution that was, quote, unquote, "better" and integrated with the rest of the Meta shit.
33:20
Quote, "Everybody checked it out and everybody went away." Why? Here's the aha.
33:27
Problems create categories, and you either have to A, solve a new problem, or B, reframe, name and claim an existing problem in a, I'm going to use these words on purpose, very different way.
33:53
And if you reframe the existing problem such that people see it in a different way, that's when they'll be open to a new solution.
34:07
But the mistake is the impasses is on the wrong [inaudible 00:34:11].
34:07
The impasses is on the product.
34:13
Because we live in a world where just like the availability of oxygen, we believe the best product wins.
34:22
Zuckerberg is going to blow in excess of a billion dollars on Threads and it will fail. It already has failed.
34:28
Because you can't take an existing problem with an existing solution, launch exactly the same shit, tell the world it's better and have the world embrace it.
34:43
Because the problem makes the solution the other way around.
34:51
So classic advice along these lines is, if you're, say, 10 times better than the existing product, you have a good chance at getting people to care and having success.
34:56
Is there a line of just like it's the same thing but 10 times better?
35:01
Or do you have to, in your experience, reframe?
35:05
And I want to talk about that.
35:05
Let's just look at the evidence.
35:10
We could agree that Jeff Bezos is not a dumb person, yes? Yes.
35:13
Do you have an Amazon Fire phone? I don't. Neither do I. Why not?
35:23
I'm very happy with my iPhone.
35:23
And so, Bezos launched a better product and nobody bought it.
35:31
And the reason nobody bought it is the problem.
35:31
And therefore the solution that you think you're solving with your iPhone is solved with your iPhone.
35:38
When was the last time you enjoyed a Red Bull Cola? Not once.
35:50
Red Bull made exactly the same mistake that Zuck just made with threads.
35:56
What Red Bull believed was, "We built one of the greatest brands in the world."
35:56
Which they have, but they didn't understand why.
36:01
The category made the brand not the other way around.
36:01
Energy Drink made the category, so they go, "Great, we can put our brand on anything and it'll sell. So let's make Cola."
36:14
They lost a bazillion dollars.
36:14
It's reported that Microsoft lost somewhere between 400 and a billion dollars in Microsoft Stores.
36:22
Did you ever go to a Microsoft store, Lenny?
36:28
I walked by them in the mall and I don't think I've ever entered.
36:32
Well, they look exactly...
36:32
If you remember, they look exactly like an Apple Store.
36:32
And Ballmer famously told the team, when the Apple Stores took off, he famously told the team, "Go to the Apple Stores, study everything they're doing and let's copy it exactly."
36:44
Google that shit, it's out there. Well, it didn't work. Why?
36:51
Because you can't attack an incumbent category queen unless you frame, name and claim a new or different problem.
37:02
Because when the existing problem is well understood and the existing solution is well understood, there's no need for a new solution.
37:17
Even if people, quote, unquote, "hate Twitter," didn't do anything to Twitter, and now Zuck's going to have to write off probably over a billion dollars on Threads.
37:25
And the funny thing is, Lenny, this just keeps happening over and over and over.
37:31
Venture capitalists in the next five years will blow at least half a trillion dollars in the AI space alone, on me too, demand chasing existing category competing startups that have a 10x better product, no one cares.
37:59
And look, we're all going to sit here and watch them do it.
38:04
And we, category pirates, and those of us in the category design world will say, "Told you."
38:10
And they're just going to keep doing it.
38:10
More importantly, because the big companies in many cases can afford to continue to fail and make this mistake.
38:17
The tragedy in this is how many legendary innovative products never got to see the light of day because the inventor, the creator, the entrepreneur, believed in the product, but didn't know that every solution has to fit into a problem of value for people.
38:47
And so their innovation went nowhere.
38:47
Let's talk about how to actually go about designing a category.
38:53
You've used this phrase a few times, and that may be the best lens to approach it.
38:57
If not, we can go at it from a different direction.
38:57
But this idea of framing, naming, and claiming, how do you do that?
39:02
What's that process like? Great question.
39:07
It starts somewhere where most people don't want to start, and that is, the first law of category design is thinking about thinking is the most important kind of thinking.
39:14
Thinking about thinking is the most important kind of thinking.
39:22
If you're going to think about thinking, we have to define thinking.
39:27
Now, the minute I start down this path, there's a meaningful percentage of people whose eyes rolling, going, "Here comes some bullshit," right?
39:33
"Just tell me how to do the SEO, Lenny. Where's the SEO? Or where's the..."
39:38
Whatever the tactical thing is.
39:46
So the first thing we have to do is break down thinking.
39:46
Roger Martin is considered to be the greatest management thinker, or certainly one of them alive today.
39:53
We were lucky enough to have him on the podcast when his most recent book came out, which if I'm remembering correctly, is called the New Way to think.
40:02
People call him the new Peter Drucker.
40:02
And he describes it as effectively as anyone I've ever heard.
40:08
And at a high level, and this is me paraphrasing, so give me some license, but he's the source.
40:13
At a high level there's two kinds of thinking, reflective and reflexive.
40:23
And now, this is my editorializing.
40:23
What most people think is reflective thinking is actually reflexive thinking.
40:30
What's reflex versus reflective? Reflex is simple.
40:38
You go for an annual checkup, yes? I should be.
40:43
Have you ever had a doctor whack your knee with the little pink? Yeah.
40:46
And your knee goes whoop.
40:47
I do [inaudible 00:40:49] .
40:47
And she's testing your reflexes.
40:52
And that's an involuntary thing, when you're sitting on the doctor's table and your legs are hanging like a little kid and she goes whack, your leg just does this twitch, right? So that's a reflex.
41:02
And reflexive thinking is very, very powerful.
41:09
You have a driver's license, I'm guessing. I do.
41:12
And when was the last time you were in a vehicle, driving? Yesterday.
41:15
And if you're out on the road driving and somebody cuts you off, what are you likely to do?
41:20
I get a little upset and then I keep driving.
41:29
But I would assert, Lenny, you do something before you get upset.
41:31
I guess I try to avoid hitting this car. Yes.
41:31
And maybe you swerve, maybe you hit the brakes, maybe you do both.
41:37
My point is this, the car cuts you off and we instantly, no thinking, react in order to save our lives, not damage our vehicles, not hurt anybody else.
41:53
We didn't think about that.
41:53
We literally just reacted.
42:00
That's the way people think about most things.
42:07
I say to you, Lenny, let's talk about guns and abortion and immigration rights in America. No, thanks.
42:12
Now you have opinions about those things, right? I do. As do I.
42:18
Most people don't challenge their own thinking.
42:18
Most people say, "Now, why do I only think what I think about abortion? Where did I learn that?
42:26
What do I really think about abortion?
42:32
What do others think about abortion?
42:32
Are there smart people in the world that I admire who are more educated and experienced in this field that have meaningfully different opinions than my own? There are. Why is that?"
42:43
Et cetera, et cetera, et cetera.
42:43
We don't fucking do that, we say our opinion on abortion is the opinion on abortion.
42:49
And in the United States of America in the political domain we say, "And anybody who thinks differently is trying to kill America." That's not thinking.
43:01
So reflexive thinking is, what do I really think? Why do I think that?
43:11
And in the business world, most people unconsciously assume the future is a continuation of the past.
43:27
That's not what legendary entrepreneurs do.
43:27
Legendary entrepreneurs don't just think they know the future is going to be different, because they're designing that different future.
43:39
And the problem they're focused on matters to them so much that the fact that the problem continues to persist makes them batshit crazy. RJ... Is it RJ or JR? I can't remember now...
43:56
The founder of Rivian, obviously Musk at Tesla, these guys are obsessed. It drives them insane.
44:04
They don't understand why we're not all in EVs already.
44:12
And so my friend Mike Maples, the legendary venture capitalist from Floodgate, says, "The greatest entrepreneurs are visitors from the future telling us how it's going to be."
44:23
And the reason many of them are so irascible is because the fact that the present is not already at the future that they see makes them insane.
44:29
And so the point being legendary entrepreneurs and creators make the future different.
44:37
They literally are in the design different futures business. Can I tell you a story? Please.
44:50
We're friends, and we've done some work with the guys who created Lomi.
44:55
And Lomi is the first kitchen appliance in 20 years to earn a spot on the kitchen counter.
44:55
A, it's one of the fastest growing new consumer items in the last 20 years.
45:09
And B, if you think about your kitchen counter, do you have a toaster? Yep. Coffee maker?
45:20
Yeah, I don't drink too much coffee, but we do have one.
45:23
Any other devices on the kitchen counter?
45:27
We got a rice cooker and the rest is hidden away. Perfect. So what's Lomi?
45:33
Lomi is the category designer of the smart home composter.
45:42
Imagine a device that's one and a half or twice the size of a good size toaster.
45:49
And what Lomi does is you take your food scraps, and it turns out that depending on whose numbers you want to believe, in America, we throw away somewhere between 40 to 60% of our food.
46:02
And it turns out that food garbage, food waste is some of the most damaging to the environment. So what does Lomi do?
46:10
You take your food scraps, you dump it into Lomi, you fill that shit up, Lomi's got a button on the front, you press that button, and what used to take three to six months to compost gets composted in three to six hours.
46:23
And even, this is weird, it smells good to me.
46:36
Lomi did not say that, "we're better garbage, that we're different garbage, that we're better recycling."
46:43
What they said was, "We are a different way of solving this huge problem."
46:53
And they use both personal motivation, nobody likes throwing out garbage, nobody likes a big mess in their kitchen, et cetera, and an altruistic vision, which is...
47:00
And oh by the way, if we do this, we will do something that governments heretofore have not been able to do, which is take a massive amount of environment hurting gases out of the atmosphere.
47:13
And it turns out because of global climate change that we're creating more and more sand and we have dirt traces.
47:28
Lomi dirt has been shown to be amongst the most nutrient rich dirt in the world.
47:38
Here is a company with a breakthrough technology that truly makes a difference in the world with a business model that allows them to build a highly profitable high growth business.
47:49
And the way they got there was by designing a new category and showing the world why, by making room in your tight kitchen for this new device, you'll make a difference for your family and the world.
48:05
And if all they had done was what, by way of example, Dean Kamen did when he launched the segue, which is, isn't this cool?
48:10
Nothing would've happened.
48:10
So my point is, the Lomi guys designed a product, a company, and a new market category.
48:20
They created demand out of nothing for, I think the average price is around 400 bucks.
48:30
The sum total of the market for smart home composters when they launched was fucking zero.
48:39
And their vision for the new category was so compelling, Jay-Z was one of their first investors. I have their site up.
48:47
Thinking about this framework of, frame it, name it, claim it, they framed the problem in this unique way of...
49:00
Is it the framing of the problem or framing of a solution?
49:00
The framing step, best way to think about that.
49:06
There's something in category design called languaging, which is the strategic use of language to change thinking.
49:15
And a mistake that a lot of entrepreneurs make is they use old language to describe their new thing.
49:23
And we can't use so much new language that nobody knows what the fuck we're talking about, so we have to meet the category where it is and bring them forward, but we have to create new language.
49:34
Can I share with you one of my favorite, most recent, favorite category design stories in this regard? Please.
49:44
You've been on an elevator, yes? Yes.
49:46
Have you ever looked at the floor and seen a logo on the floor of the elevator? I can't recall. I imagine it.
49:51
Well, if you do, you'll more than likely see this name, Otis. Otis Elevator.
49:58
Most people don't know why Otis is the category queen of elevators. Well, here's why.
50:08
Elisha Otis invented the elevator.
50:08
Now, pre-Elisha, there were no skyscrapers.
50:21
Because how could you get to the top floor?
50:21
How could you build the top floor, et cetera, et cetera, et cetera.
50:25
So when he creates the elevator, there's no known problem for it to solve.
50:33
So he demonstrates it, people think it's cool.
50:33
He shows it at like fares and shit.
50:41
Because the big problem with prior elevators was they would crash.
50:46
And so he built this safety system to catch them if the wiring would crash.
50:46
And the category name, he actually used, Lenny, he called it the safety elevator to address the current problem in the space, which is... I don't know.
51:00
People still went, "That's interesting, but why do I need a safety elevator?"
51:08
It's a solution with no problem. So what does he do? Languaging.
51:14
And in category design, one of the breakthroughs is this thing called a point of view, which helps you frame, claim and name a problem and educate the world on why they should move from the way it is to, we call them frotos, from to, a new and different way.
51:29
So Elisha has to make the market, there's zero demand.
51:37
It's what many of our smart VC friends call a zero billion market, which is what you want.
51:45
So what does Elisha call it? The vertical... Railway Beautiful.
51:57
And people understand what a railway does.
52:00
It moves people and shit this way.
52:00
And he said, "Great, we've now got a vertical elevator that moves people and shit this way."
52:06
And if you have a vertical elevator- Vertical railway.
52:10
A vertical railway, thank you.
52:15
You can have a new category of building.
52:15
This is no different than anybody today, for example, in the technology space, who's building a new part of the technology stack for AI.
52:24
So if you've got a new important security layer for AI that enables a new highly secure AI application.
52:40
From a languaging perspective, if you just use existing languaging, you'll be like Elisha in the beginning where people go, "That's really cool, man.
52:45
Fucking A, didn't think that was technically possible. Wow.
52:50
It's like you've broken gravity, dude, incredible.
52:57
Don't know why we'd ever need this. See you."
52:57
And he goes, "Wait a minute, wait a minute.
53:00
What if it was a vertical railway?"
53:00
"Well, what could we do with a vertical railway?"
53:09
This is why thinking matters.
53:09
The way you think about the problem, the way you frame claim and name the problem.
53:15
One of the core tenets, Lenny, in category design is listen to the words. Listen to the words.
53:24
And when you listen to the words, you will hear things that you don't normally.
53:30
And so he created new languaging, what in category design is called a point of view, to frame, claim and name a problem, which is, how do I move up and down versus across land?
53:38
And in so doing the aperture of people's minds created what you could think of as new mental scaffolding for a whole new kind of innovation.
53:54
And thanks to Elisha Otis, we have tall buildings.
54:00
I really like this idea of languaging.
54:00
Are there any other examples come to mind, awesome examples of languaging in action that worked out?
54:05
I got a bazillion of them.
54:05
Another one of my favorites.
54:10
When Starbucks first starts a coffee is 10 cents.
54:18
You sit there and you go, "We can't make money at 10 cents."
54:18
That doesn't make sense, right?
54:22
Unit economics don't work for what we're trying to get done.
54:22
If the ASP in the industry is 10 cents, we want to have an ASP of three bucks. Fuck. Well, here's the aha.
54:28
It's very hard to charge three bucks for a thing that everybody currently pays a quarter for, if you call it the same thing.
54:49
So they create new languaging, they teach, they literally teach consumers new language.
55:00
That's why you and I walk into Starbucks and say, "I'd like a double grande latte, please."
55:06
25 years ago, that was not languaging that you and I used.
55:06
And they use it as a mechanism for radical differentiation and radical value/price differentiation.
55:15
And they made up the fucking word.
55:26
It sounds kind of Italian, vente.
55:26
But the truth is, by the way, it's a milkshake, but that's a whole other conversation.
55:33
They're the number one milk seller in the country.
55:33
They're a milk company, not a coffee company.
55:38
But that's, again, a whole other conversation.
55:38
The point being, if you want to charge three bucks for something that heretofore has been 10 cents or a quarter, change the language.
55:49
And you know it's Starbucks language.
55:49
Where I live, there's a shit ton of new hipster independent coffee shop type places.
55:56
Where they paint the Mona Lisa in your latte before- ...
56:00
where they paint the Mona Lisa in your latte before they give it to you and all that shit.
56:06
If you walk into one of those hipster places and ask for a double grande latte, the super hipster gal or guy behind the counter with the nose ring and shit is going to give you a bit of a grizzle, because you are using Starbucks languaging in their location, and that's the other breakthrough.
56:22
This is really important in the technology industry, the company that creates the languaging for the category wins.
56:39
Oh, you see that today, OpenAI.
56:39
Not that long ago you did not hear the term large language model. Correct? Correct.
56:51
That was not a term we were talking about. That's right.