The Unicorns are everywhere! But to create an entire category requires some foresight, strategy and understanding of how others did it in the past. And the rewards are worth the risk. Research shows that 76% of market cap is owned by the ‘category kings’ – so what are you waiting for?
‘The disruptors’ are everywhere, but should we be aiming for disruption or instead category creation?
Category creating companies become so valuable that we can’t live without them.
Let’s look at two rapidly growing markets where category creators have come in and blown the entire market out of the water:
- Airbnb in the P2P accommodation space, a subsector of the global sharing economy
- Equity crowdfunding platforms in the UK, part of the collaborative finance sector in the global sharing economy
What enabled these platforms to ‘blow up’ in their respective markets and create new categories?
Platform + Trust = Exponential Growth
First, you need to build a platform that can streamline the process of two parties connecting, and design mechanisms of trust to enable the two parties to transact:
- in the case of Airbnb, it was building trust between local hosts and global guests. Their breakthrough came in 2010 in NYC when they started hiring professional photographers to photograph hosts’ homes
- in the case of Seedrs and Crowdcube, the two most prominent platforms in the UK equity crowdfunding market, they worked closely with regulators in 2012 to build their trust and prove there was no fraud. Seedrs was also part of the ‘Windows of Opportunity‘ campaign in collaboration with several prominent investors and went across the country to build trust with both companies and investors
Companies in the sharing economy + fintech space usually take about three years to build ‘platform + trust’ and then growth goes exponential.
Of course, no company can build ‘platform + trust’ without raising significant sums of capital and developing the internal capabilities to execute on such a model.
For Airbnb’s first fundraising round, they tried to raise $150,000 at a $1.5M valuation and were famously rejected by 7 venture capitalists. They eventually got into Y Combinator and the rest is history. For one investor who missed the deal, it continues to serve as a $1 Billion lesson.
Companies that become category creators reach the zenith in their respective markets because everybody wants to be on the platform and an employee in the best company:
To invest in such companies requires vision, foresight and instinct, as the data is not typically there to support such a big opportunity at an early stage:
To nail this model and become a category creator, you need to have a ‘future view’ and invest into it. There are no market forecasts for categories that have not yet been created. The risk is high, but as we have seen above, the rewards are worth it.
What is Business Model Innovation? Innovation using the Business Model as the main mechanism, rather than product or technological innovation. Reinventing a business model – or creating a new one – is a matter of remixing the core components of a business model and developing new value propositions, revenue streams, and cost structures.