Category design is a powerful tool in the tech world. It helps companies differentiate themselves, stand out from competitors, and build a loyal customer base. But there’s another crucial role that Category design plays: it positions companies as leaders in emerging sectors, or what’s often called “blue ocean” markets. These are sectors with significant growth potential and large Total Addressable Markets (TAM).
But what happens when you’re working in an already-established niche? Should you create a new category, or is it more strategic to carve out a sub-category? In this post, we’ll explore how to decide, using real-world examples – when to go big and when to go niche.
What We’re Learning
In this blog, we’re diving into Category design in the tech industry. We’ll focus on:
- How to determine the size of your category
- The importance of identifying whether a sub-category is the right choice
- How to position your offering as both a standalone solution and a vital part of a larger category
What’s the Best Approach?
A common question we get is: How big should your category be? What’s too small or too large? And should you be afraid of adjacent Categories? If you’re creating a sub-category, how do you ensure that buyers see it as a standalone purchase and not just a feature to be absorbed into a larger Category?
These are essential questions for any company looking to carve out their own space. The size and scope of your Category can determine how you market your product, engage with customers, and eventually scale your business.
The Balance Between Small and Large Categories
In our work, we’ve encountered everything from massive categories—like the P2C (digital commerce) space, which encompasses B2B, B2C, and DTC—which we developed for Productsup down to highly niche categories, such as one we developed with Sphere for oil traders. The key in both cases is determining the size of the problem you’re solving.
Let’s take Uber as an example. Its transportation platform targets a massive market – everyone who needs a ride. But Uber didn’t stop there; they expanded into Uber Eats, creating a stronger network effect where drivers and riders benefit from each other’s presence. The result? Uber not only dominated the transportation category but expanded to become a broader service provider.
But sometimes, you need to go smaller. We’ve worked with companies targeting very specific markets, such as international taxation professionals (and no, not tax avoidance – just honest reporting). In these cases, your Category might be small, but the solution you provide is laser-focused on a specific pain point.
When to Opt for a Sub-Category?
Sometimes, you’ll run into challenges when working within a large, mega-category. For example, we worked with a cyber training company in the booming field of cybersecurity. The challenge? Cybersecurity is huge – it’s hard to stand out in such a large space. But there’s still room for new sub-categories, especially as the tech landscape evolves. As new problems arise, new solutions and sub-categories are born.
So, when should you create a sub-category? Here are a few considerations:
Check the Competition: Find the White Space In saturated markets, you’ll often see “bunching” of similar-sounding products and categories. The more similar your competitors are, the more room there is for differentiation. Our work with Pentera is a great example of this. In the world of cybersecurity, many competitors were talking about “pen-testing,” but they missed a key opportunity: continuous, automated security validation, which was more cost-effective and timelier than traditional pen-testing. We created a new sub-category, which not only resonated with customers but the quickly became an industry standard.
Understand Your Ideal Customer Profile (ICP) It’s crucial to deeply understand your Ideal Customer Profile (ICP). Rather than simply focusing on professional titles like CIO or CISO, think about the problem your solution addresses and how it aligns with their needs. Sometimes, it’s about addressing a challenge that transcends job titles. Take, for example, the application management software firm we worked with: the challenge was “the never-ending To-Do list” that IT operations teams face. It didn’t matter if you were an engineer, CISO, or even an engineer on an oil tanker – the issue was universal.
Consider the Future A key factor in Category design is thinking ahead. Just because a solution is valued today doesn’t guarantee it will continue to be in the future. The tech industry evolves rapidly. For instance, who would’ve thought dial-up modems would give way to 5G, or that productivity tools like Clippy would be replaced by AI copilots like Gemini?
When designing a sub-category, you need to anticipate how your Category will evolve. Don’t let your Category become obsolete by failing to keep an eye on emerging trends and innovations.
Pay Attention to Intermediaries In any market, intermediaries play a critical role. As categories develop, these intermediaries – such as value-added resellers, managed service providers, or travel agents—can evolve. Think about how the cloud revolutionized the role of managed service providers, or how e-commerce shifted the role of traditional travel agents. In some cases, your sub-category might also redefine the role of an intermediary in the ecosystem.
Keep the Category Broad for Future Expansion While it’s tempting to niche down and create a super-specific category, remember that Categories need room to grow. For instance, Uber began in a niche but expanded to become a multi-service platform. The goal is not just to get your partners and customers on board with your Category; you also need to get analysts, media, and even competitors to adopt your language and concepts. That’s how you create lasting momentum.
Is Carving Out a Sub-Category Right for You?
Ultimately, carving out a sub-category from an established niche requires careful thought and planning. It’s not just about shrinking down your offering to target a specific group – it’s about reframing an existing solution in a way that resonates with buyers, solves their pain points, and creates room for growth.
A compelling proposition, a clear understanding of your ICP, and a long-term vision for Category evolution are key to success. The process isn’t easy—it requires iteration, market testing, and focus. But the payoff can be immense: creating a new category within an established niche can lead to market leadership, customer loyalty, and significant growth.
What Did We Learn?
Building a sub-category within an existing Category is a smart strategy, but there’s no one-size-fits-all approach. The key is to understand the existing environment and ecosystem and look for areas where customers are underserved, or traditional solutions can be rethought. This often requires an external perspective and a focus on creating a truly compelling proposition—one that challenges legacy thinking and sparks momentum for change.
As we’ve seen with successful sub-categories, it’s all about the spark that ignites the movement. Once that happens, the momentum builds—and before you know it, your sub-category could be the new standard in the market.