March 2, 2026
Hi Everyone,
"Define the category" has become one of the loudest pieces of strategy advice, especially in VC circles.
And there's a good reason – category leaders capture roughly 76% of the value in their markets. But first movers fail 47% of the time, while companies that enter a validated market later fail on average only 8% of the time.
Both paths can work, but the expensive mistake is picking the wrong one for where your company is right now.
Today, we're walking through a quick scoring exercise that helps you make the call.
What each path actually asks of you
Creating a category often means spending months (sometimes years) convincing the market that a problem exists and needs a new kind of solution – before the revenue follows.
Competing inside an existing category means buyers already understand the problem and are actively looking for solutions. Your job is to stand out – through better positioning, a sharper focus on a specific segment, or a product advantage that's hard to copy.
The difference comes down to whether you need to build demand or capture it.
Which path fits your company right now?
These seven questions help you figure out which path fits your company right now. A higher score means you have more of the ingredients for category creation. A lower score means you're better positioned to compete inside an existing category — which, given the failure rates, is often the smarter bet.
Set aside 15 minutes with your co-founder or leadership team.
Answer each question honestly – Yes (2 points), Partially (1 point), or No (0 points).
1. Do your early customers buy without a lot of convincing?
If buyers immediately get the problem and want the solution, existing demand is there. If you spend most of your sales cycle explaining why the problem matters, you may need to build the category first.
2. Are buyers already comparing solutions in a defined space?
If prospects show up with a shortlist of competitors, you're in an existing category. If they don't know what to search for or how to budget for it, the category may not exist yet.
3. Is anyone outside your company using your language to describe this space?
Partners, analysts, or buyers picking up your terminology is one of the strongest signs that a category is forming. If the language lives only in your pitch deck, it hasn't taken hold.
4. Do you have proprietary data or domain depth that improves with scale?
Something that gets harder to compete with over time – unique data, deep workflow integration, or domain expertise baked into the product – is valuable in either path, but essential for category creation where you need to stay ahead of fast followers.
5. Can you fund 12-18 months of market education without a cash crisis?
Category creation demands heavy upfront spending on awareness before revenue catches up. If your runway depends on near-term sales, that investment may not be realistic.
6. Is the timing right – is there a shift that makes buyers open to a new way of thinking?
Category creation works best when something in the environment is already changing – a regulatory shift, a new technology, a change in buyer behavior – and you're giving that change a name.
7. Does your team have experience running market education campaigns, or is your strength in sales execution?
Category creation needs people who can build narratives, recruit ecosystem partners, and run sustained awareness campaigns. Competing inside a category rewards strong sales operations, channel optimization, and product iteration.
How to read your score
0-5 points: Compete inside the category
Your company is better positioned to win by focusing on a specific segment, building a defensible edge there, and running tight unit economics.
Companies that compete with discipline inside existing categories fail far less often and can grow just as profitably.
6-9 points: Hybrid territory
You may have some ingredients for category creation, but not all of them.
Consider whether you can carve out a strong position inside the existing category now and revisit the category play in 6-12 months once more pieces are in place.
10-14 points: Category creation is worth exploring
You have early demand signals, some runway, and a market environment that's receptive.
Before committing the budget, set clear milestones – if pilot conversion, language adoption, and CAC payback aren't trending in the right direction within 6-12 months, be ready to pivot to competing inside the category instead.
Go deeper
👉 Strategic Management Insight: First Mover Advantage – a detailed look at when being first helps and when it backfires, with the evidence behind the failure rates we cited today
👉 Craft Ventures: The One Who Defines the Category Wins the Category – the strongest case for category creation, worth reading if you scored high on the exercise
👉 Wall Street Prep: Blue Ocean Strategy – the Eliminate-Reduce-Raise-Create framework for finding an underserved space inside an existing market, useful if you scored low and want a structured way to differentiate
👉 Cascade: Porter's 5 Forces – a practical walkthrough of how to analyze your competitive position within your category and figure out where you have room to win
Coming up tomorrow
Tomorrow we're breaking down a jet lag protocol you can plan in 10 minutes and reuse for every trip.
Have a great week!
P.S. If you're competing in a crowded category right now, what's the one thing that actually sets you apart? Let us know what's working.