On Category Creation, Languaging, and Why Competition is for Losers
Welcome to another edition of Cheat Sheet by Outlier Academy. Each week, we compress 6+ hours of research and interviews into 3 big ideas that you can read in 5 minutes.
This week we profiled one of the internet’s most-read writers (100M+ views), Nicolas Cole, and his latest book Snow Leopard: How Legendary Writers Create a Category of One with co-authors Eddy Yoon and Christopher Lochhead.
Here are the 3 big ideas in this week's Cheat Sheet:
Competition is for losers; avoid it at all costs.
How Eight Sleep created the Sleep Fitness category.
How to find and create your own category of one.
QUOTES
“Writers without niches are starving artists. Writers with niches are Category Kings.” — Snow Leopard
“All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.” — Peter Thiel
PRINCIPLE
Competition is for losers, avoid it at all costs.
We’re all taught that competition is good. That it evens the playing field, creates fairer markets, and promotes innovation. Which is a wonderful way to think about it academically.
But, in truth, every business spends an enormous amount of time and money trying to escape competition. Because direct, often called perfect competition, is destructive and creates a zero sum dynamic where no one prevails. Here’s a quick refresher:
Perfect Competition: The situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
One of the best examples of perfect competition is the airline industry, where a large number of companies compete directly with one another with nearly identical products—selling similar seats, on similar airplanes, from and to similar locations. This is why it’s widely been cited that in the 100+ year history of the airline industry, the cumulative profits generated were around $0.
In Peter Thiel’s view, there are just two types of businesses: perfectly competitive ones and monopolies. Here’s what he had to say in Sam Altman’s famous Stanford CS 183B How to Start a Startup class:
“I do think the extreme binary view of the world I always articulate is that there are exactly two kinds of businesses in this world, there are businesses that are perfectly competitive and there are businesses that are monopolies. There is shockingly little that is in between.”
In his view, monopolies aren’t bad. They’re ideal.
Having a monopoly helps you avoid direct competition and gives you the best chance of creating a valuable company. As Peter Thiel says, “… to create a valuable company you have to both create something of value and capture some fraction of the value of what you've created.”
One of the best ways to move from a perfectly competitive business to a monopoly is to create and own a category. By creating a category, you narrow and eliminate your direct competition. You move from competing by trying to outperform to selling something different entirely.
CASE STUDY
How Eight Sleep created the Sleep Fitness category.
Eight Sleep is a fantastic example of a company that moved from perfect competition to monopoly by creating their own category—which they called Sleep Fitness. But that didn’t happen on day one. It was actually a response to feedback from Keith Rabois, who was their Series B lead investor.
Like most companies, Eight Sleep started by imitating their competitors as well as other companies they thought were focused on their target customer. Here’s how Alexandra Zatarain, Co-Founder and VP of Brand & Marketing, described the early days in Episode #88:
“There's a lot of power in imitation. But I do believe now that when you’re building a brand, your brand is about your own beliefs around what the world should look like and your position in that world. You need to have a really strong point of view. I don't think that you can build that out of imitation or A/B testing. When we started, there was no clarity on who we were. We knew what we were building, we knew the problems we wanted to solve, but from a brand perspective, we were much, much weaker.”
Fast forward a couple of years, and Eight Sleep had an incredible product—a smart mattress that heated and cooled so you could get the best sleep of your life—but their sales were floundering. They were competing with every other mattress business, both old and new companies, to sell a better product to customers hunting for their next mattress. They were engaged in perfect competition. Then came the lightning-strike moment as told by Alexandra Zatarain:
“Then as we raised our Series B. The investor that came in at that time was like, ‘You guys need to change the positioning of this company or you're going to go nowhere. People are just going to think that you're a mattress company with technology, which you certainly aren't.’”
That one comment changed everything and led Eight Sleep down the path of creating an entirely new category that they called Sleep Fitness. They weren’t selling you a mattress, they were selling you the best sleep of your life so that you could wake up and perform at your best. They described their products as having “sleep fitness technology” and created an app that displayed your “Sleep Fitness Score” every morning.
FRAMEWORK
How to find and create your own category of one.
As evidenced by Eight Sleep’s move to Sleep Fitness, much of the initial work to create a category comes down to what Snow Leopard calls “languaging”—which is the strategic use of language to change thinking or to move an idea from one place in people's minds to another. Here’s a quick overview from Page 165:
“Category Design is a game of thinking. You are responsible for changing the way a reader, customer, consumer, or user “thinks.” And you are successful when you’ve moved their thinking from the old way to the new and different way you are educating them about. The way to do this is with words.”
But before you start the process of identifying the 2-3 words that will define your category—yes, that’s really all you get—you need to start by developing a strong Point of View. Here’s how Snow Leopard frames the importance of having a very clearly defined Point of View:
“Companies and creators with unclarified, undefined POVs eventually come to the conclusion that they have a problem (sales are down, attention is sparse). But they end up stating the root of their problem in the way they ask for help: ‘We need to work on our messaging.’ More times than not, what they mean when they say ‘messaging’ isn’t actually messaging—but point of view.”
To develop your northstar Point of View on your category, there’s a simple three-step process:
Frame it: Paint a picture of the world you want to create and your role in that world.
Name it: Find the 2-3 words that most powerfully and provocative communicate your Point of View.
Claim it: Go all in and thread that Point of View through everything that you do.
Frame it. Name it. Claim it.
In Eight Sleep’s case, they knew from day one that they weren’t a mattress company. Their goal was to “fuel human potential through optimal sleep” The result was “Sleep Fitness,” which now threads through everything they do. They develop Sleep Fitness Technology, provide you with a Sleep Fitness Score, and their mission is Sleep Fitness.
What can you frame, name, and claim to create your own category?
Until next week,
Daniel Scrivner
Creator of Outlier Academy
P.S. Go deeper on why competition is for losers and what to do about it by watching Peter Thiel’s “Competition is for Losers” talk given at Stanford University in 2014. Or just download the slides.
Listen, watch, or explore more of this week’s Outlier Academy episodes:
20 MINUTE PLAYBOOK
Nicolas Cole, Co-Founder of Category Pirates and Ship 30 for 30 | Favorite Books and Writing Tools, Enduring Boring Things, and Why Great Writing Changes the Reader
Listen Now | Watch Now | Episode Guide | Transcript
BOOK CLUB
Snow Leopard: How Legendary Writers Create a Category Of One | Nicolas Cole, Author and Co-Founder of Category Pirates