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a16z Podcast | Creating a Category, from Pricing to Positioning
22 segments available
The purpose of category creation, argue the guests in this episode of the podcast, 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. But when you're going for a big change, you have to play by the current rules of the game, too. And to make things even more complicated, theories about how "IT is dead" -- or the conviction that companies and departments beyond IT will become empowered through software -- are still very much in transition. Somehow we don't talk about that enough. That means startups need to do everything in two phases: for the now, and for the later and towards two constituencies: both direct lines of businesses and IT. So what does that mean for startups trying to navigate a complex enterprise, including internal debates around build vs. buy? How do you move beyond a few internal champions only? And just how long can a company cash out on founder charisma? In fact, all of these things can give entrepreneurs very confusing, mixed signals about whether or not they have product-market fit yet. So what patterns reveal that it's working? In this episode of the a16z Podcast, general partner Martin Casado -- who helped create the category of "software-defined networking" in the enterprise through Nicira and then VMware (and has also written about the mixed messages involved in going to market when no market exists) -- and Michel Feaster, CEO and co-founder of Usermind, and who previously (as VP of products at Apptio) also defined the category and discipline of "technology business management" -- share their insights, in conversation with Sonal Chokshi. It's a long game, but if you can tease apart the signals, and nail some key moves early... you can win.
Segments Timeline
The Importance of Category Creation
In this segment, the hosts introduce the concept of category creation, emphasizing its significance for startups selling innovations to large enterprises. They highlight the roles of Martin Casado and Michel Feaster, who have experience in defining new categories in technology, and set the stage for a discussion on how category creation impacts pricing, positioning, and market dynamics.
"hi everyone welcome to day 6 and Z podcast I'm sonal today we're talking all about category creation which a lot of new startup selling new innovations especially to big companies have to do joining u..."
Defining Category Creation
Martin Casado explains that category creation involves identifying a new problem and providing a unique solution. He discusses how creating a category allows entrepreneurs to set their own pricing and market size, contrasting it with existing markets where prices are predetermined. This segment underscores the strategic importance of category creation in driving business value.
"covers everything from pricing to positioning to other product marketing and what category creation means for entrepreneurs to broader trends in how ite is changing but we begin by defining what we me..."
The Dual Objectives of Entrepreneurs
Casado outlines two primary objectives for entrepreneurs engaged in category creation: first, to implant a new concept in the minds of potential customers, and second, to establish the value associated with that concept. He emphasizes the challenge of creating a new playing field and setting the rules, which ultimately drives business success.
"there's no other single number that like ties to the valuation the price point basically that's ACV yes and if I am in an existing market the ACV is already set already set period nobody else's game t..."
The Role of Pricing in Enterprise Success
In this segment, the discussion shifts to the critical role of pricing in enterprise sales. Casado shares insights on how pricing directly impacts sales performance and company valuation. He explains the challenges faced by startups in establishing their pricing strategy when entering a new market and the implications of existing market prices.
"field doesn't exist so you first have to create the playing field but then you get to set the rules and once you do that that's what drives your business and like basically the industry I mean that's ..."
Navigating Market Creation Challenges
The conversation delves into the complexities of market creation, where entrepreneurs must convince potential customers to invest in unproven solutions. Casado and Feaster discuss strategies for overcoming skepticism and building credibility with early adopters, emphasizing the importance of demonstrating value before discussing pricing.
"been Horwitz on our board yeah and here's the one that actually really impressed us upon me was he told me once in a meeting he said you know there's nothing that will impact the value of your company..."
Engaging Visionary Customers
Feaster shares her experience with early customers, who are often visionaries willing to embrace new technology. She explains the significance of reaching a critical mass of customers to establish market credibility and how this can lead to increased pricing power as the company grows.
"which is when you are in a market creation category creation or market not ready situation kind of we're conflating all three but let's for all until the purposes they're the same thing in this contex..."
The Lifeblood of Product Marketing
The segment focuses on the essential role of product marketing in enterprise software companies. Feaster discusses how effective product marketing defines the competitive landscape, enables sales teams, and communicates the unique value proposition to customers. She emphasizes the need for clear messaging and customer engagement to drive sales success.
"this is what I always tell my companies which is don't discuss pricing until after you've got them to technical close and what I mean by that is these people didn't even know the problem existed a mon..."
Positioning and Sales Enablement
In this concluding segment, Feaster elaborates on the dual functions of product marketing: positioning and sales enablement. She explains how positioning involves framing the problem and solution for customers, while sales enablement equips sales teams with the tools and narratives needed to effectively communicate the product's value.
"capability I totally agree that product marketing is one of the most critical functions of going to market an early enterprise ok so don't let's talk about what the product marketing function is and w..."
Developing a Sales Playbook
The conversation shifts to the development of a sales playbook as companies mature. The speakers discuss how identifying repeatable sales motions and creating specific plays can enhance sales effectiveness. They share examples of successful sales strategies and the importance of adapting messaging to different customer scenarios.
"to figure out how to do sales and the first thing I look for is like do you have a product marketing function yes or no because like there really is no single point in the company that better encompas..."
Recognizing Real Market Signals
In this segment, the speakers address the challenge of distinguishing between genuine product-market fit and the influence of charismatic founders. They discuss the importance of analyzing customer relationships and deal patterns to identify true market signals, emphasizing the need for entrepreneurs to remain self-aware and data-driven in their approach.
"beautiful yeah a lot of people they view sales says I'm gonna give you know one slide deck you know to a salesperson they'll take that slide deck and then they'll be successful in selling and know lik..."
Navigating Enterprise Complexity
The discussion concludes with insights on navigating complex enterprise environments. The speakers compare this process to navigating government structures, highlighting the diverse agendas and players involved. They explore how software can serve as a tool to break down silos and facilitate communication across different departments within organizations.
"you're getting dollars and just because they're taking meetings doesn't mean that this is a signal I mean even the customers capacity for education is enormous they're quite happy to pay for you to ed..."
Navigating Enterprise Complexity
The conversation shifts to the challenges of navigating enterprise organizations, likening it to navigating government structures. The speakers highlight the importance of creating new roles within companies as a form of category creation, illustrating how software can transform organizational dynamics and responsibilities.
"unbelievable the capacity for the customer to pay to learn and it's unbelievable the ability for strong founders to make money and sell without they're actually being a good product market fit so some..."
The Blurring Lines Between IT and Business
This segment explores the evolving relationship between IT and business functions. The speakers argue that as software becomes more integral to various departments, new teams will emerge to manage technology, leading to a reorganization of roles and responsibilities within companies. They predict a future where business technology teams will oversee all technology and customer experiences.
"suffering yeah I love it so and you know when I when I founded user mind one of my central premises was the line between IT and the business is blurring if you look at the future majority of software ..."
Creating a New Category in the Market
The discussion focuses on the process of creating a new category in the market. The speakers emphasize the importance of understanding existing procurement processes and organizational structures to effectively position a new product. They share insights on how to reverse engineer the context around customer needs and budgets to facilitate category creation.
"up doing listen if you're entering somebody else's playing field like you're selling you know tissue or something else like that you're playing by somebody else's rules so a lot of the time they're wa..."
The Challenge of Thought Leadership
In this segment, the speakers address the challenges of establishing thought leadership and a compelling narrative before launching a product. They reflect on the naivety that can accompany new ideas and the necessity of aligning solutions with the actual problems faced by potential customers, drawing parallels to historical examples of innovation.
"wake and by the way the customers are looking to you for Thought leadership yeah and ultimately I always say that in a category company product strategy also has multiple chapters so to me you know ch..."
Competing with the Status Quo
The speakers discuss the nuanced challenge of competing against the status quo when creating a new category. They highlight the difficulty of positioning against existing processes and the need for entrepreneurs to navigate the complexities of market perception and internal resistance within organizations.
"which is like but if he did I think is actually true yeah I'm very useful yeah yeah so I mean there's one of these things where like we're probably 10 steps ahead of them and I think so much of buildi..."
Build vs. Buy: Navigating Market Signals
This segment delves into the build versus buy dilemma faced by startups. The speakers explain how the willingness of companies to invest in building solutions can validate a startup's idea. They discuss the importance of articulating the ROI of purchasing a solution versus developing it in-house, emphasizing the benefits of shared R&D and insights in a SaaS model.
"it actually tends to be like not either right so often in categorization you're actually competing with the status quo that's a very nuanced message to get across without calling the baby ugly right y..."
The Role of Product Marketing
In this segment, the speakers delve into the critical role of product marketing in the startup ecosystem. They explain how effective product marketing can help position a startup's offerings against competitors, emphasizing the need to communicate unique features and the long-term benefits of their solutions to potential customers.
"sometimes the the companies but then how do you as a founder actually address those two cases of a competitor who's essentially trying to position in the same space or an incumbent selling on futures ..."
Empowering Non-Technical Users
The discussion highlights the importance of empowering non-technical users in the enterprise software landscape. The speakers argue that the future of innovation lies in democratizing development, allowing business users to leverage technology effectively while maintaining necessary controls for IT departments.
"product marketing ok a couple of quick things I wanted to ask you know Michelle any things that's fascinating to me is that you guys you know you talk about this customer first journey and this is som..."
Navigating Dual Stakeholders
This segment addresses the complexities of selling enterprise products to both IT and line-of-business stakeholders. The speakers emphasize the need for tailored messaging and strategies to appeal to these distinct groups, as well as the ongoing transition in how enterprises engage with technology.
"deployments just one quick thing and it's more of an underscore which is if you're have an enterprise product that's going to market today to a non-technical user say marketing for example like what w..."
The Changing Role of IT
The speakers discuss the evolving role of IT within enterprises, suggesting that IT is transitioning from a traditional function to one focused on integration and configuration. They highlight the importance of addressing both business value and technology challenges in sales processes to succeed in the modern enterprise landscape.
"actually this is been a learning I like a big learning in might in the last two years it's like we all talk about the line of business being empowered but we talk about less is that it's a transition ..."
Patience and Iteration in Enterprise Success
In the concluding segment, the speakers share insights on the long-term nature of success in the enterprise space. They encourage founders to be patient and open to iterating on their ideas, emphasizing the importance of building strong relationships with early customers who can provide valuable feedback and support throughout the journey.
"win so what's your parting takeaway or mindset or advice for others trying to do this investing product marketing your product function yeah I mean look the beauty of enterprise is that enterprise can..."