Don't Compete for the 24%: Christopher Lochhead on Designing and Dominating Your Own Category

Asked by Lenny why his website's testimonial wall is full of negative reviews, Lochhead says the first reason is a sense of humor, in keeping with the name of his team, Category Pirates. The second is that creators fear being criticized or ridiculed, and he has learned that anyone trying something exponential is criticized anyway. He cites Picasso, the Beatles, Elvis and hip-hop as examples of work that was mocked before it became dominant.

A third reason is that the creator world is full of people congratulating themselves, and he thinks it is better not to take ourselves too seriously. He contrasts Lenny's approach with influencers whose business model is creating envy and a sense of superiority. In his view, the legendary educators in the digital world do the opposite, refusing to set themselves above their audience.

Lochhead says most people make an unexamined decision to compete in an existing market with a better product, service or business model, expecting the world to beat a path to their door. There are huge numbers of marketing and strategy books on Amazon, he notes, and nearly all are about how to compete and win. His point is that nobody legendary did that: we know Bob Marley and Picasso, not the 17th reggae band or the fifth cubist.

For his first book, he and his collaborators analyzed every venture-backed US tech company from 2000 to 2015, measuring value by market cap and valuation rather than market share. They found that on average one company in a category earns 76% of the total value created. Choosing to compete, he says, means unwittingly choosing to fight for the remaining 24%, which is the difference between capturing demand and creating it.

He prefers the term category design to category creation because creation makes people think of the first company to ship a product with certain features, such as Myspace or GeoCities. Just as you can design a product, a culture or a business model, he says, you can design a market and create a new distinction in value.

Lochhead's example is Gojo Industries, maker of Purell. A husband-and-wife team found bar soap disgusting, so they reframed the problem from how to wash your hands to how to wash your hands without a disgusting bar of soap, creating liquid soap. They then asked how to clean hands without water, which led to hand sanitizer, where Purell is the dominant brand.

Unlike most innovators who become obsessed with the solution, Gojo stayed obsessed with the problem. Lochhead says the company that designs the space is the one that gets a meaningful share of the world to agree with its definition of the problem, which leads to its definition of the solution. He frames the key question for every entrepreneur as whether to compete for 24% of an existing category or create one and, if you execute, earn most of the economics.

He calls category design the most radical kind of differentiation. Many software companies actively invite comparison with a feature grid against three competitors, while legendary innovators broke new ground and wanted to be irreplaceable: customers should ask, switch to what?

Using the revenue software space as an example, Lochhead says Gong was smart to see that revenue would be a big new space that CRM, ERP and BI did not cover, and to pick off one tight part of it and dominate it. Starting with a niche, he says, is what a startup should do, as with early CRM where there were separate companies in support, help desk, sales and marketing.

The mistake, in his view, was staying in that micro niche. Successful companies discover that their biggest barrier to growth is their current category, because you can only be as big as your market category. He says that Clari, a company he has worked with, claimed the bigger end-to-end revenue agenda, leaving Gong and others to either stay in their niche and be diminished or chase Clari as copycats.

Lochhead's main current example is Threads. Despite headlines about a Twitter killer and what he calls perhaps the greatest distribution advantage in software history, with a free product and one of tech's most powerful brands, he argues it has cratered. His explanation is that Threads attacked a well-understood problem with a direct copy and even celebrated being Twitter, just better.

The principle, he says, is that problems create categories: you either solve a new problem or reframe an existing one so people see it differently and become open to a new solution. He lists more failures of the same kind: Amazon's Fire phone, Red Bull Cola, whose makers did not understand that the energy drink category made their brand, and Microsoft's stores, modeled on Apple's. Where problem and solution are both well understood, there is no need for a new solution.

Asked whether being ten times better works, he points to those examples. He predicts venture capitalists will waste huge amounts in AI on me-too startups chasing existing categories with a product that is 10x better, and says the tragedy is the innovative products that never saw daylight because their creators did not tie them to a problem of value.

Asked how to frame, name and claim a category, Lochhead says the first law is that thinking about thinking is the most important kind of thinking. Drawing on Roger Martin, he distinguishes reflective from reflexive thinking and argues that most of what people think is reflective is really reflexive, like a knee jerk or swerving when cut off in traffic. Most people do not challenge their own opinions, and in business they unconsciously assume the future is a continuation of the past.

Legendary entrepreneurs, he says, are designing a different future, and it drives them mad that the problem they care about persists. He quotes investor Mike Maples that the greatest entrepreneurs are visitors from the future telling us how it will be.

His illustration is Lomi, a smart home composter that turned food scraps into compost in hours rather than months. Lomi did not claim to be better garbage or recycling but a different way to solve a large problem, combining personal motivation with an altruistic vision. He says the market for smart home composters was zero when it launched, at an average price around $400, and that Jay-Z was an early investor.

Lochhead describes languaging as the strategic use of language to change thinking, and says entrepreneurs often make the mistake of using old language for a new thing. Elisha Otis invented a safety elevator, but people saw a solution with no problem. When he called it a vertical railway, people grasped it and a new category of building, the skyscraper, became thinkable.

He says category design teaches you to listen to the words. A point of view, as he uses the term, frames, claims and names a problem and educates the world on moving from one way of living to another. Without new language for a new security layer for AI, for instance, people would say it is cool but they do not see why they need it.

Starbucks, he says, had to charge about three dollars for something that sold at 10 cents or a quarter, which is hard if you call it the same thing, so it taught consumers new vocabulary like grande. He adds that the company that creates the language for a category wins, pointing to the terms large language model and training data popularised around OpenAI. He still thinks language for training data is not good enough yet.

For choosing a category, Lochhead's first piece of advice is to spend more time on the problem than the solution. He gives the example of an early AI security startup whose founder asked him to speak to customers about the problem, not just to the team, which he sees as a sign of a founder who is obsessed with the problem.

His second is Mike Maples's backcasting. Most people do forecasting: they stand in the present, picture a future, and ask what they need to do to get there, like planning a backcountry hike. Lochhead says that works for a hike but is a disaster for a startup, because your reference point is the past. Instead you reject the premise, imagine a future five years out where everything went better than hoped, and ask from there what you did to make it happen.

He criticizes the word disrupt because it makes an existing thing your reference point. He cites designer John Bielenberg's exercise asking students to design a bicycle that cannot be ridden, which he calls thinking wrong, as a way of opening the aperture to radically different possibilities. Incremental improvement, he says, is why most entrepreneurs fail, and while a zero-billion-dollar market sounds insane it is the route to meaningful success.

Lenny notes that designing a category looks hard and expensive, and Lochhead replies: compared to what? Building a product, a culture, a business model or a company is hard too, and he cites a view that product maturity takes eight to ten years. He adds that most innovation comes from startups and that his collaborator Eddie Yoon sees big consumer companies fail at it. Six people with a small investment can stand up something that could be worth trillions, as Apple was.

On product-market fit, he says to listen to the words: it means fitting your product into a market. He argues you should instead design a market category for your product, noting that Threads achieved product-market fit faster than anything in history. The tech industry is full of product bigots who believe the best product wins and that a demo is marketing's job.

People buy a new insight about a problem or opportunity, he says, not a faster or cheaper product, and he also dismisses the advice to lead with the founder's journey. Citing Nielsen data analysed for his book Snow Leopard, he says the top-selling nonfiction categories are personal growth and personal finance, as people care about themselves, their problems and their wants.

Asked about positioning, Lochhead says it has become telling a unique story about your product, but you position against competitors, which means fighting for the 24% designed by somebody else. In his bluntest phrasing, positioning in the modern context is for losers, and he calls it category design for the cowards, carving a niche instead of making your own space.

On differentiation he says category designers compete, but against the status quo and not against brands or products. Spinning classes told riders that cycling was great but could get you killed, so they should take a class; Peloton then said not to drive to the gym when you can do it at home. Both reframed the problem and dammed the demand for the earlier category instead of attacking it.

He adds that such moves can expand the market: the electric guitar did not kill the acoustic, since most players own both, so it increased the guitar market. Lenny likes the phrase damn the TAM, and Lochhead says effective growth work is really digital damming of demand.

From his book The 22 Laws of Category Design, Lochhead highlights the magic triangle: product, company and category are equally important, and products fail because they do not get category designed. He also contrasts lightning strikes with peanut butter. Most marketers spread budget evenly across quarters, an approach he links to the century-old reach and frequency model, which fails in a world of tens of thousands of daily marketing messages.

Borrowing from how Hollywood launches movies, a lightning strike concentrates effort on a very clear target audience for a day or two. He suggests one or two a year for B2B, two or three for B2C, and notes that small companies will struggle to do one a quarter. He would rather matter for one week a year than be irrelevant for the rest of it, though he accepts that keep-the-lights-on marketing is still needed.

He has never seen word of mouth in a marketing plan, which baffles him. He adds the concept of super consumers: roughly eight to ten percent of buyers produce most of the profits and set the zeitgeist. You find where they gather in the digital world, evangelize the problem as an educator rather than a seller, and give them a point of view that spreads, which he says can be a cheap growth engine.

In his closing message, Lochhead says he started his first company at 18 and was thrown out of school without a GED. He lists several learning differences, including ADHD and dyslexia, and says he has written 14 number-one bestsellers. His message is that anything is possible, and he does not want people to listen to those who tear them down.

He is clear that incremental improvement matters, for example for a product manager choosing which features to build, and that many small improvements can add up. But that is not category design. He thinks the next five years of innovation will outstrip the last twenty, acknowledges the risks of AI, says the Luddites are always wrong, and tells entrepreneurs the future needs them.

In the lightning round he recommends Richard Bach's Illusions and Mark McCormack's What They Don't Teach You at Harvard Business School. His favorite interview questions are "is there anything else?" and "are you legendary?", and his motto is to throw down a rope if you make it to the top of a mountain. He ends by urging listeners to make a place in the world for themselves, because the people who are different make the biggest difference.