How will you be Categorised in the new economic reality? Winner or loser?

Written by Jonathan Simnett

If you have spent the last few years working round-the-clock to build your tech scale-up you might be a bit worried right now.

We’re in a perfect economic storm. Inflation, already on the rise driven by the global economic shock delivered by the pandemic, is being stoked by war in Ukraine.

A tech stock correction caused by this and other factors in global economic turbulence is in full swing. This means the end of cheap money, over-enthusiastic valuations and cash being poured into even-more speculative investments in too-early endeavours or over-saturated tech sectors.

The confidence and fashion factors

Markets work on confidence and are driven by fashion. In every tech cycle it seems to be forgotten that all boats float on a rising tide. Also-ran companies attract funding because they look good in a booming market, but these are the first to suffer as a new more austere reality bites.

But as economic events unfold, yesterday’s table stakes investment is now just something that bleeds money, a bleed that must be staunched quickly.  Now, the rush to sustainable profitability has replaced the dash for market share at eye-watering cost per customer acquisition.

Even those who have the potential to emerge as leaders in new Categories are having their wings clipped.  Just put `on-demand grocery layoffs` into Google News and you’ll see this effect in action.  But having your wings clipped is preferable to having the rug pulled from under your feet.

Better isn’t good enough

Right now, in tech investment evaluation `better` isn’t good enough.  Difference is where the value lies.  Category difference delivers survivability in the short term as those around you run out of runway and leadership in the long term. And remember Category leaders eventually capture 75% of the value of their category.

So, if you are still building and looking for that elusive next round of funding, or are well-established but can see the writing on the wall for your current ecosystem, now would be a very good time to get your firm behind a new Category mission.  After all, many of the current tech Category leaders either started in a downturn, or, had to deal with one very early in their life – Disney in 1929, Microsoft in 1975, Netflix in 1997 and Airbnb in 2008, for instance.

Three reasons to Categorise

Category differentiation is a powerful strategy even during economic downturns for three reasons

  1. Avoiding being rationalised out by existing customers looking to economise in their tech stacks by doubling down on your Category and the problem it solves.
  2. Using your Category difference on prospects to point to ways to manage more with less, capture more customer value and take advantage of new markets in a way their current solutions do not today.
  3. Persuading investors your Category vision is steadfast in the face of market disruption and may even be accelerated by a faster evolution to your Category.


Strike, strike and strike again

But just like economies emerging from a downturn, establishing Category leadership doesn’t happen overnight. Think 3-5 years. You’ll need to strike, strike and strike again to establish clear differentiation to the market. You’ll need to hold your nerve when people both outside and inside your company don’t get it and need help to move the out of their comfort zone to think differently.

Stay radical to ensure you emerge as a winner. As the prolific and disruptive inventor and innovator, Thomas Edison, once said “Hell, there are no rules here – we’re trying to accomplish something.”

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