Why A Startup Needs to Launch in An Existing Market Category

If you listen to a variety of startup pitches or work closely with startups, one refrain you often hear is – “We are unique. There’s no one else like us.” What appeals to a founder about this idea is that they don’t have any competitors. Instead, this is a hidden debt that we explore in the Marketing Ocean. 

So, why do we say being in a market category of one company is a bad idea? Two reasons: 1) customers don’t know what the category is, so 2) a startup has to spend time and dollars to educate them. Remember, the human brain likes to sort and categorize information. When people encounter a product (or service) in a whole new category, that means they don’t know what it is or how to evaluate it. Until people know what something is, they will struggle to figure out if it’s good. They need the shortcut of an already-defined category to help understand what the product is and then why this new product is better. 

Consider when FedEx first launched its overnight delivery service. What category did people know about? Mail delivery. So, FedEx positioned itself as “mail delivery” that happens overnight. It launched into an existing category and highlighted its point of difference - speed. Over time as people got used to the idea that there’s a new category called “overnight delivery” and FedEx had competitors, it continued to stress its speed and dependability – “when it absolutely, positively has to be there overnight.” 

This hidden debt happens for both startups and big companies launching new products. Let’s consider fast-acting insulins, called analog insulins. Eli Lilly launched the first fast-acting insulin in 1996. At the time, Lilly was the market leader in insulin sales. With patent protection, that meant it was the sole manufacturer of analog insulins for nearly 20 years. Don’t get me wrong, that certainly was a nice revenue stream for Lilly. But check out the graph below. In 2000, there were ~ 3 million prescriptions of analog insulins. Competitors entered the market in 2004 and 2005. By the end of 2005, the number of prescriptions being written for analog insulins was higher than the older human insulin line. The market entry of two competitors drove up the entire category’s sales. With three companies now promoting the category, sales broke wide open. If Lilly only had a 1/3 share, its volume still would have doubled in five years. Dial forward to 2015 and analog insulins have grown more than 10x. That, is the benefit of having competitors in your market category. 

Insulin Prescriptions over Time.jpg

Everyone says they want to be first-to-market in a blue ocean with lots of white space. In reality, swimming in the middle of the ocean is lonely and dangerous. Bottom line - you want to enter an existing market category and find a way to be better than everyone else already there.

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