For years, advice to founders and entrepreneurs looking to create iconic companies has been to create their own category. Over the past two decades at Emergence, we’ve seen thousands of companies attempt category creation, some successful, and some not. Ultimately, we believe that creating a new category is not the only (or the best) path to building an iconic, enduring company. In fact, we’d argue that challenging complacent incumbents is a stronger strategy.
We observed with front-row seats how Salesforce took over the existing CRM category in the early 2000s and how Zoom took over the video conferencing category in the 2010s. But how were these small startups in the early days able to outcompete their incumbents in different eras, and what can entrepreneurs learn from these stories as they take on other incumbents in the eras to come?
There are a few characteristics that make existing markets fertile ground for disruption:
- Customer obsession: As incumbents dominate a category, they pay less attention to the end user and work to protect their contracts, including other stakeholders. This ends up diluting the value they deliver to those actually using the solution. As a result, in these categories, the NPS tends to be really low when measured at the end-user level.
- Company leadership: These large incumbents are generally led by executives, not founders, and these executives lack the irrational obsession that founders have when they decide to start a company.
- Product focus: Product cycles in large companies are designed to please and appease Wall Street and other financial stakeholders, resulting in overly cautious and slow product development cycles.
- Sales motion: Incumbents are under pressure to deliver numbers, and that trickles down through the entire organization. This forces sales teams to find and close deals at all costs, vs. closing the right deals, which results in unhappy customers with products not designed to solve their business problems.
- UX/UI: As companies expand their customer base, they get trapped with their original UX/UI and as a result, end up adding instead of optimizing. Ultimately these UX/UI become so clunky that people use them just because they've been using them for a long time.
- AI: Incumbents were not built with an AI mindset. They are now trying to bolt on AI to be able to tell a story, and this is the category we believe creates the high leverage point for new entrants with AI engines to disrupt these incumbents.
In the same way that the cloud created leverage for Salesforce to disrupt Siebel, and mobile created leverage for Zoom to disrupt Webex, we believe AI is an even bigger leverage to disrupt some of these entrenched incumbents. The beauty for those who dare to do this, and do it right, is that there is an existing willingness to pay, and TAMs are already large and established.
We are already seeing companies using this playbook. Logik.io in the CPQ category, Ironclad for digital signatures, and AudiencePlus in the marketing automation category. We are convinced there are many other categories where this needs to happen, such as Corporate Training, Procurement, IT Security, and more, and we’d love to speak with founders who are eager to go after these categories. If this is you, please don’t hesitate to reach out to Santi at email@example.com and Jess at firstname.lastname@example.org.
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