How brands grow when competitors converge

Laura Schultz: Hi, everyone! Welcome to the first episode of our 2026 webinar series. I'm Laura, Marketing Director here at Lippincott, and have the pleasure of introducing today's host, my colleague Taddy Hall. Taddy's a senior partner in the experience and innovation practice at Lippincott, and one of the world's leading innovation authorities. He specializes in unlocking growth across mature industries, and has spent decades advising C-suite in the design and implementation of successful growth strategies. He's also advised heads of state on national innovation strategies and the creation of entrepreneurial ecosystems in countries as diverse as Brazil, Kazakhstan, and the Philippines.

For over 25 years, Taddy has also collaborated with Harvard Business School professor and innovation authority, the late Clayton Christensen, on numerous advisory and research projects. Together, they co-authored the best-selling book, Competing Against Luck, along with articles for the Harvard Business Review that have been deemed as must-reads by the publication. He's a sought-after speaker and author, with additional articles appearing in the Wall Street Journal, Ad Age, Time Magazine, Business Insider, and more. In short, Taddy has a wealth of knowledge and experience about driving growth across industries, so we have a great episode for you here today. With that, I'll turn it over to you, Taddy.

Taddy Hall: Okay, thank you for that high promo intro, Laura, and thanks, everybody, for joining us. This should be fun! Our biggest challenge is gonna be cramming it all into the limited time that we have today, but if you leave wanting more, please reach out. We're always eager to have these conversations with anyone who shares our curiosity. Before we jump into the actual content, quick word from our sponsor, a little bit about Lippincott.

We've been around for quite a while. And how we do what we do has certainly evolved and changed over the decades, but what we do really hasn't, which is to help marketers solve their most complex and ambitious marketing and brand-related challenges. And in that work, we've had the great privilege of creating some of the iconic brands of the 20th century, and more recently, helping leaders navigate some of their transformational moments as they evolve brands and create new brands, to create those go-to brands that we all know and love in our personal and professional lives.

Everything that we do is rooted in a careful balance of rigor and creativity, of technology, but also deep humanity. Brands that outperform don't just say they do, and we are constantly navigating that balance to make sure that brands are performing as high-performance business assets, which is really the way that we approach all of our work, and it's not the extent of our capability list, but it's having the right capabilities to solve the precise problem and challenge that our clients have that makes us successful. So that's us.

How about all of us, and what we're doing today, and what brings us here? And this is… hopefully this is super, super exciting work. I'm gonna say a little bit just about the arc of this session, before we dive in. It's really, I don't want to say a performance, a conversation in three acts. I'm going to first just introduce and illustrate the key concepts that we're going to be exploring and talking about today. The second act is really going to be digging into the causes of both category convergence, and its happier twin category creation, and really understanding what are the forces that drive these phenomena and underpin them, why are they persistent, how can we harness them in the interest of achieving our business objectives. Then the third piece of this is really opening up for Q&A, and I want to make sure we do leave time for that when we get there.

So that's a little bit of the arc and a little bit more specificity. These are the two phenomena we'll be talking about, and I mentioned that they're related, this notion of category convergence, and I'll give that term more meaning and definition and illustration in a second, and category creation, how seemingly stuck or mature industries can suddenly experience renewed life and growth when innovators are allowed to ask different questions, see with fresh eyes, and unlock opportunities that others miss. And for this journey, we have a special muse here, Marcel Proust. And I've always loved this quote, it's one of those things that has stuck with me for a long time, which is this notion that the real voyage of discovery consists not in seeking new sights, but in having new eyes, and so much of what we're going to be exploring today uses this as almost its touchstone, our source of truth, that we're going to be learning to perhaps put on new lenses and look at phenomena that we have observed many times before, but have that exciting feeling of seeing things we hadn't seen before. And hopefully this conversation not only gives you confidence that it's possible, but also ideas about how more practically we can apply those lenses to unlock opportunities.

So let's jump in, and specifically, a story about our friend Gary. We got to know Gary's company about 8 years ago, but this story was legendary at Cliff Bar then, that he was out on a 175-mile bike ride, which seems like the first problem to solve. And he had packed for himself 6 power bars, which, for folks who don't remember what power bars, they're kind of a extruded laminate of textureless carbohydrates and protein, and it was the only sort of energy bar that was available at the time, and around mile 125, Gary kind of felt like, I can't have one more of these things. And fortunately, he was also a bit of a baker as well as a biker, and with his mom, he teamed up, and over a period of about 6 months, perfected the recipe for what became Cliff Bar, and an entire new category was born, at least transformed. There was a power bar before, but this really… the idea of energy as real food, not just this sort of extruded laminate, took shape. I think they sold 700,000 dollars in their very first year, mostly through bike shops and nutritional stores in the Bay Area. And it experienced exciting growth for a decade or more, growing to right around a billion dollars.

The problem with Gary's tremendous success is that it wasn't long before other folks jumped in, and it started to look like this, and like this, and then, well, like this, and there's hundreds of different SKUs of energy bars in your average grocery store. And here's the thing. So this is kind of category convergence in action, if you will. There was a great opportunity for Gary and his company, but it was quickly copied and emulated. You can walk around the grocery store, and you sort of see the same thing, and whether it's laundry detergent or my favorite category, I drink way too much of this stuff. But I won't start picking out my favorites of sparkling water. But even outside the grocery store, whether it's credit cards or streaming services, SUVs, washer, dryers, I just bought a washer recently, it looks like, all of those. Desktop printers, we're gonna have to spend a little more time on this one, just because it's kind of my favorite, so take a moment to pick yours.

I go back and forth, it's hard to go wrong with a divorced one. The two guys in the upper left, who… I know it's funny, because avocado sounds like the word for lawyer in Spanish, avogalo, but it's… I don't know, they look like pits to me. Anyhow, it's across all categories, and you see this incredible convergence, and then you get into pretty difficult dimensions of competition where it's incremental features, and share battles, and a lot of price involved. But those are fairly unpleasant sort of competitive struggles to find yourself in.

So, what's the way out of this? And does it always have to be this way? I was reflecting as we started to think about this in the process, and Laura alluded to it in the introduction, about the book that I got to write with Clay Christensen and Karen Dillon a number of years ago, and one of my favorite conversations in that experience was actually talking to the founder of American Girl Doll, Pleasant Roland. One of the most interesting things about that story is I had assumed she started a doll company, and then all this other stuff, the musicals, and the pajamas, and the books, and the salons, that that had sort of come out later on. It all came out of the same idea that she wrote down in a snowy weekend in her Wisconsin cabin, because it was never about the doll. She never wanted to start a doll company. It was all about enabling experiences that allow mothers and grandmothers to connect with their daughters. It was a very different approach to the category than the toy manufacturers had had.

Similarly, I think most of us can remember the Nintendo Wii when it came out, and you had Xbox and PlayStation, competing on ever more sophisticated consoles, and then this game designer for Nintendo, Shigeru Miyamato, comes along. Interestingly, he was an industrial designer, not a software engineer, and instead of thinking about, like, how do we make a better game, he was asking, well, why would anyone pick this thing up in the first place? And instead of focusing on gamers, he focused on the whole family and the household. And Wii was born, and it was a tremendous success.

So you see this time and time again. Ernie Garcia, who's one of the co-founders of Carvana, instead of trying to figure out, like, make a better dealer experience, he was like, well, why do people leave car dealerships with stomach aches? And so what you start to see over and over again is, yes, this phenomena of category convergence is incredibly pervasive, but there does seem to be a way out if you start to look with new eyes. And as we were doing this, this is kind of just in here for fun and giggles, but as we were exploring this, it kind of hit on us that once you start to act to Proust, see the world with new eyes, we thought about, hey, Peloton and Duolingo are actually doing similar things in some ways, but in very, very different categories, which is they're taking something that many of us struggle to motivate to do, exercise for Peloton, learning a foreign language for Duolingo, and by making it fun, and making it social, and bringing a little bit of, sort of, if not necessarily competitive, I don't want to say gamify, because that's a horrible word, but make it feel maybe more like a game. They just made it incredibly successful as a business, and much more engaging and rewarding for users. And my point here is really, again, back to Proust, is when you do start to look with new eyes, you see remarkable things.

And so again, quick sort of pause, what is going on here? What are these phenomena? And how do we… is it like lightning in a bottle, and you have to be Pleasant Roland, or Ernie Garcia, and you just kind of have these epiphanies? It had me thinking, actually, back to the early days of disruption theory, which probably many of us are familiar with, either in depth or, more regrettably as a bumper sticker, which gets applied to most anything that's just sort of new and different. And Laura alluded to this, I had the great fortune of being in the very, very first section that Clay Christensen taught at Harvard Business School, and it started a nearly 30-year friendship, which started as me being a terrified student in his class, and ended up with us doing a lot of fun stuff together. But Clay had this wonderful phrase that he used to use all the time, which is when he was asked questions or his opinions about different things. He would say, I don't really have a point of view, but the theory does. And in the early days of when I was getting to know Clay was when he was really formulating disruption theory, which then was popularized in his 1997 book, The Innovator's Dilemma.

But it's all an in-depth study and articulation of what is it that causes large companies to be toppled by underfunded and less skilled upstarts, and that was really the core of disruption. And I just want to take a quick second to walk through the theory of disruption, because the point of this session is, I think, in some ways very exciting, which is the theory of disruption, just as I think Clay kind of anticipated. It has something else to tell us. So just really quick refresher, and this is actually a case that we've lifted from the book, and certainly, Clay taught it a lot, and I've taught a lot as well. But this is the basic concept of disruption, is in the early days of an industry, most products start out kind of not quite good enough, and that purple line shows the slightly increasing slope of the increased performance along any dimension that the mainstream customers are willing to pay for and can actually absorb. But what almost inevitably happens is that established leaders following their most profitable customers upmarket overshoot the level of performance that will be valued and rewarded by mainstream customers. And that is what creates the space for innovators to come in who have much simpler, but less expensive, often from the perspective of the established leader, less attractive, less profitable offerings, but they're able to get root in that low end of that market and then march upward.

And one of the cases that is told at great length features a client of ours and good friends of ours, Nucor Steel. Who, when electric arc furnace technology became available in the early 70s, and the innovators offered it to the big integrated steel companies who were playing across the entire steel market, and the pitch was something like this. Hey, this is great new technology, you can use recycled scrap, has a 30% cost advantage over your traditional integrated blast furnace. Can we sell you some? And the big steel companies say, well, that sounds very interesting, tell me a little more. Like, well, the technology's not great yet, so all you can really make with it is rebar, which is only about 4% of the market has 7% gross margins, and so the big steel guys were like, well, we don't… this is not very attractive, no thank you. But Nucor said, well, we can make money selling rebar, and they do that. And over time, they're like, geez, if we could get a little bit better at this technology, we could actually get into the angle iron bars and rods business, which is twice as big and has higher margins.

And what's interesting is the large, integrated, established players are happy, and their shareholders applaud them as they exit these smaller, less profitable markets. Of course, what we know what happens is that Bethlehem Steel disappears a couple decades ago, and U.S. Steel, just last year had to be bailed out by a foreign investor, because Nucor is by far the largest and most profitable steel company in the country, and can make virtually every grade of steel, including the high-performance steel and exposed surfaces of automobiles and high-end appliances. But that's the way that disruption works. Is that large established companies responding to their economic self-interest, especially in the short term, move progressively upmarket as upstarts who start in smaller, less attractive, less profitable segments of the market, gain a foothold, and then march upmarket. That is what disruption is.

What's exciting for our purposes today is that phenomenon of overshoot, of established players marching up market, kind of doing what they taught us to do in business school, of responding to your most profitable, most valuable customers, overshoot the level of performance that the mainstream customers can actually absorb and are willing to value. So here is a great example of this in action. Lily, longtime leader in the insulin market, is spending hundreds of millions of dollars pursuing ever-purer synthetic forms of insulin for a small number of patients who actually have allergic reactions to the porcine-based insulin. And as they do that, they're investing all this money in ways that are interesting and profitable for a small number of customers. But not for the vast majority of diabetes sufferers. And Novo Nordisk, which is a very small company, but it's been rooted always in a very patient-centric approach to healthcare, and probably most pharmaceuticals say that. They actually build it into their capabilities. So there are anthropologists who are part of product development teams, and they actually use, in terms of their measures, the extent to which they're improving patients' experience of living with diseases, not just the performance of their devices or of their molecules.

And so, when they focused not on a pure insulin, but on a very different question, which was, how do we make the experience of living with diabetes something that just can be woven into the fabric of ordinary daily life. And the core insight that actually led to the development of the pen was actually a doctor and a mother who had a young daughter who had diabetes, and she had to give her an injection in a London train station. She said, there has to be a better way to do this. Spurred by that experience, she went on, and then Novo Nordisk went on to develop the insulin pin, which wasn't trying to beat Lilly on pure insulin. But actually create an entirely new dimension of performance, which is how do you make the experience of living with diabetes something that is just woven into the fabric of your life, and not something that is really either painful or inconvenient, or embarrassing for people who have diabetes? And in doing so, they captured a very durable and large and important segment of the market.

And that's what these category creators do. And we've seen it more recently in home audio, where you have a whole number of very fancy stereo component manufacturers moving up in search of those audiophiles who are willing to pay ever more for higher performance sound, until along come some innovators from a company that we all know now as Sonos. With a very different question, which was, how do we fill the home with music? How do we just make it much easier to have music filling your house rather than necessarily have the very, very best quality music, which is where the established players were competing. And, great example of that, or making it more visible, who would you rather compete with? This gorgeous thing on the left, which I'm not… I wouldn't even recognize a stereo speaker. I think they cost, like, $85,000 to $100,000 a pair. Or would you rather compete against… it's kind of obvious. And this is what category creators do time and time again. Is they exploit that overshoot of established players over-delivering on single dimensions of performance, leaving huge opportunities for these innovators to come in and simply kind of ask better questions and identify dimensions of desired experience that competitors are neglecting. And kind of like that FedEx arrow, once you see it, you see it everywhere.

And that's been some of the focus of our recent research, is just seeing how pervasive this is. And whether it is in cat litter with tidy cat lightweight, innovating on a… not on the traditional dimensions of odor control and tracking and clumping. But how can I actually get this stuff off the shelf and into my car in my house without having to either make a dedicated trip to the store, or have someone do it for me, because I've got, like, 3 kids I need to take to the grocery store with me. Home security, nobody likes the contracts, the installation, all the wires. How can I just secure my home in minutes without all of that hassle? You see the same thing. We all experienced it during the pandemic. Do you remember the old days of video conferencing? You have to have IT in the room, and it was like a whole production? And yes, you had big companies like Cisco trying to make ever more secure and sophisticated video conferencing facilities, when all we really want to do is just be able to get on a conference call as easily as we could do it on our phone. And so time and time again across categories, across industries, you see innovators doing this.

One of my colleagues told me about this, and she's having it installed this weekend, apparently. And what I've learned, I didn't know this thing actually existed, but it makes sense. You want to have your living room as a living room, not a place that is a TV room, and so when you're not watching TV, there's this huge black thing on the wall. I'm not a TV guy, but I get it. It's a very different way to think about a dimension of performance that many companies were neglecting, but that consumers value.

Two powerful phenomena. Category convergence. There are powerful forces that seem to drive almost this inexorable pull of established players to overshoot, as we learned with disruption, the level of performance that mainstream customers are actually able to absorb and to value. And the happy cousin we talked about. The category creators who change the basis of competition and dramatically expand what seemed to be mature categories where low or no growth is actually possible. Put in more colloquial language, inertia does seem to love a knife fight, but channeling Proust, as we all now do, or in this case, the Chinese strategist Sun Tzu, the supreme art of war is to submit the enemy without fighting, and that's what these guys are doing time and time again. If you look at all the categories that we've covered in the last 15-20 minutes, and many, many more, is they're not entering into head-on competition with established leaders. They're changing the rules of the game, changing the basis of competition. And expanding markets in the process, often targeting non-consumption. Think back to Nintendo Wii, it wasn't about gamers. It's about everybody else who likes to have fun in their living room, but doesn't want to have to learn how to use some new console, as if they're training to be air traffic controllers.

So why is it so exceptional? Why is it so rare, and that we see these things, like a SimpliSafe, or a Sonos, or a Carvana, or back to American Girl, I have two daughters, and I'm still sensitive about how much money I got built out of. I mean, the idea that you would take a doll to get a haircut, but anyhow. So why is this so exceptional? And so this is interesting, and this is where I really sort of dug in to figure out what are those forces that seem to sink their teeth or their claws into companies and get them to behave in ways that blind them to these opportunities. And so these are the three main forces that seem to persistently and pervasively conspire to keep companies stuck in these sustaining tracks, and missing other opportunities.

So just a quick walkthrough on what we're talking there. Capability captivity, and this is really interesting, because this actually goes back to some research that Clay and I and others were doing in the early 2000s, and we were talking to CEOs and leaders about capabilities, and it was one of those sort of big fuzzy words, wooly words, like, what do they actually mean? And so we spent some time actually trying to define, and it's not like there's necessarily a right or wrong, but we defined capabilities very specifically for the purpose of our analysis, which is that we can think of capabilities as being composed of really three different things. There's resources, which is basically stuff you can buy and sell and hire and fire. Processes. So obviously, there's things like manufacturing processes. But there's also budgeting processes and market research processes, and all of the different processes that are essentially the lifeblood and the connective tissue that animate organizations to create value. Talent evaluation and promotion processes. And priorities, which in some ways is the biggest sort of catch-all, it really encompasses governance and lots of rules. Unwritten and written, that guide how priorities are set, allocate resources, provide incentives, some very explicit, like, how do we compensate our salespeople, and some that are just kind of in the water that we drink, things that people might call, say, the culture of the place, and that's the way we do things, or that's not the way we do… all of these things matter profoundly in enabling organizations to perform and create value in the ways that they have determined that they want to create value.

What's really interesting is if you map these capabilities to what we call the surface-to-air missile chart, the SAM chart, the Core Disruptive Innovation Chart, is these capabilities are optimally configured to create and deliver and capture value in ways that are quite rigid and very efficient. And often have control measures imposed on them to make sure that they are performed efficiently and productively over and over again, but it also makes them incredibly inflexible. And as quality legend Edward Stemming said, every process is perfectly designed to produce the outputs that it produces. And the mistake to this day, that executives make over and over and over again is they ask capabilities that were built for one purpose to essentially do something that they were not designed to do. And it never works. It doesn't work. And one of, sort of the most colorful examples, and I'm sure United and Delta would just as soon have us forget about them, is… and all the major carriers do this. They had the playbook for Southwest. There was no secret. There's business school cases, there's books on it. There was no secret to the success, and they had the playbook, and they still couldn't successfully create these low-cost carriers, for all the reasons that we have identified, that capabilities built for one purpose cannot be asked to do something different.

The second phenomena that we've identified here is data dependence. And the tendency to measure what's easy. Often what's easy, essentially, is the exhaust of economic activity. Rather than mapping out the contours of the less defined segments of non-consumers. Think about Nintendo Wii, it's a whole lot easier to measure the population of gamers than to think of, like, well, who are all those people out here who might be interested in having it? That's much harder. And so especially in established companies, we're very good at consumption data, which is useful for tracking performance. But we're much less comfortable, confident, or even capable, in the sense of… not that we're not literally capable of doing it, but we don't have the capabilities to measure non-consumption with the same rigor with which we measure consumption. And the consequence of that, in case anybody's forgotten, is you end up here. A rusty, old Bethlehem Steel integrated mill, that responded with some of the best executives at the helm making decisions to a series of decisions that led them into non-existence. And that's what happens if we're only looking at consumption data and essentially tracking data of past performance.

And then the third element here is what the psychologists call status quo bias. There's very little incentives to kind of plumb the depths of the unknown, or to go out and seek unfamiliar or uncomfortable areas. That's just not nice, fun, and often rewarding. These are a lot of terms. I don't know what many of these actually mean. Some of them I do, but there are all sorts of well-researched and established psychological definitions of the various forces that conspire against innovative thinking, or, more memorably articulated by Niccolo Machiavelli and The Prince. There's nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things. You don't have to go read the whole prints, but that's pretty good. I don't know if he actually looked like that, it's a little creepy, but you get the point, is that it's not a natural act. And this is just an interesting one, just for the purpose of bringing it into at least the 20th century, if not the 21st century. Even when confronted with breakthrough technology, like the internet, smart, capable executives, in this case, we're kind of picking on Yahoo, try and fit it into an established media model, kind of as much content as you can cram onto a single page there, and by the way, there's a mortgage you can have. And rather than seeing this new technology as an opportunity to innovate around entirely new business models. They passed on the chance to acquire Google for a million dollars, and Facebook, later on for a billion dollars, and later turned down Microsoft, because they were so confident and so attached in the model that they had.

So these are the three things, and we're gonna do this for fun here, do a really quick poll. We've kind of done this on high speed, but we've introduced these three quite different barriers, and sometimes they combine and conspire, but really interested in people's just initial reactions or responses to which of these forces pose the greatest challenge or difficulty to your organizations. And I think, is getting this enabled? Is that happening in real time? Okay. So we're getting some initial response. It's so interesting just looking at the data as it rolls in. About half of the responses are for status quo bias, and then the other kind of 50%, slightly more for capability captivity. And what's interesting is, day dependence, which is sometimes… I mean, it's hard to pick a winner or a loser, as the case may be. Anyhow, super interesting just to get a sense of where people are on that one. Do I have to close the poll here? No, I don't, okay. Alright, zipping right along. Answip. Hold on a second. There we go, sorry, I think that was technical incompetence.

So what do we do with all this information? There are these forces that conspire against us. How do we get the ship pointed in the right direction? Good news, we found that there really are these four keys, and they intersect, they work together, and it's not a menu. But they really are all required in the interest of unlocking the opportunity afforded by category creation. And so we'll just go through each of these here in a little bit of detail, just so that people understand what we're talking about. Kind of a beginner's mindset, I think that's probably familiar, but it's really that notion that in a expert's mind, there are very few possibilities, but in beginner's mind, there are many. And sometimes expert's mind is great. If I'm playing chess with a chess master, I'm going to see all sorts of opportunities to move the chess piece, and almost all of them are bad. And she will look at the board, and in 5 seconds, know there's really only 2 or 3 moves to make. And so, expert's mind is not a bad thing, but it's not that helpful for when we're trying to create new categories.

With a colleague a long time ago, we wrote a little thing in HBR, which was funny, about the difference between seeing something unexpected and reacting to it with a mindset of, hey, that's weird, versus that's interesting. And weird carries some judgment, makes things easy to dismiss, hey, that's just kind of some odd behavior, some fringe freak or whatever. But when you stop and pause and say, hey, that's interesting, it leads you to dig a little bit deeper, maybe to get curious. Start to wonder, is there something maybe we don't understand?

We were talking about this the other day, and I remember working with Greg Lyons, who was, at the time, the president of, I don't know if they called them presidents then, the head of the Mountain Dew brand at PepsiCo, and they had a team that had gone into, and I'll make this story short, but they were spending time in convenience stores, and they saw, not every day, but fairly often, young men going in on their way to work and getting an OJ and a Mountain Dew and mixing them together in a cup to make some kind of a morning concoction. And I just think that so many folks would see that and be like, that is just plain weird, and it may be a little weird. But Greg and his team are like, hey, what's going on there? And the point is they spent a lot of time digging into what these young men were trying to achieve. And it wasn't just about an orange-flavored Mountain Dew. What it really was about was they're trying to transform from being catatonically asleep to being at their best and on their job. Not liking coffee, feeling that carrying in a 20-ounce bottle of Mountain Dew probably wasn't a very professional look. But this was just great. Mom had always had OJ for breakfast, I love Mountain Dew, it's got tons of caffeine. And so long story short, is that PepsiCo launched this drink called Kickstart, which wasn't explicitly, it wasn't like Mountain Dew for breakfast, but it was really rooted on this idea of morning energy and transformation. And it unleashed, in just a couple of years, a $350 million business that was almost entirely incremental to Pepsi's Rockstar energy business and their Mountain Dew Carbonate soft drink business.

I just think it's unusual for people to do what the Mountain Dew team did in that case, was actually to see something that does look like an anomaly, because it is an anomaly, and to pause and say there's something interesting there. And in fact, the word anomaly's gonna come back here in a second. Clay was a dumpster diver, for those who didn't know it, and he actually made this sign, that initially was hanging in his office, and this is actually taken from outside of his office, where it was moved to. That was his office, Morgan 723. He'd put this as a reminder to everyone who visited him to seek anomalies, and that anomalies really are the touchstone of opportunity. And in fact, in the first Harvard Business Review article that Clay and I wrote, that introduced the whole concept of jobs to be done, and we co-authored it with Intuit founder and former CEO Scott Cook. And in that article, we told this story, which Scott tells beautifully, about the way that Intuit developed QuickBooks, which was initially a software package just for regular old people to kind of balance their checkbooks online. But over time, they were seeing that entrepreneurs were using this tool to run their small businesses, and Scott just found it so curious. And he went out and spent time with these guys, and there's a whole lot of small business accounting software that's really designed for you, and this little kind of crummy program that I developed really isn't designed… and he, over and over, would hear these stories, like, oh my gosh, Scott, have you tried to use those software packages before? I just wanna focus on growing my business and not have to worry about the finances, and I try and use those things, and my anxiety level goes from, like, 7 to 15. I don't understand the terminology, I don't need all… I just want to focus my business without having to worry about running out of cash.

Scott describes, then, pivoting the QuickBooks business, to focus on this very simple task of not running out of cash. And he said, in less than a year, they had commanded more than half of the small business accounting and finance software market with half the functionality of their competitors, and selling it at twice the price. And to me, it's just a wonderful example of when you find these anomalies and don't dismiss them.

And then this is the third part, is you configure capabilities, perfectly. The resources, the processes, and the governance and the rules and incentives to fulfill that experience that is desired by your customers. And then the final part is you attach that experience to a brand. But a wonderful example of this, and again, a longtime kind of friend and collaborator, Paul LeBlanc, who is the president of SNHU over this period of time, where it grew tenfold, and it's one of the fastest growing companies, it's a not-for-profit in the country. And it was rooted in this insight that Paul had, when participating in an executive ed experience of, like, oh my gosh. The populations that we serve, these 18-year-old kids who are looking for a coming-of-age experience versus late-life learners, who are often single parents, working a job or two, trying to get a degree at night, are just wildly different. We kind of treat them like they're the same. It's just sort of curriculum online, curriculum offline. But what SNHU did was a whole series of capability-building steps to make sure they were perfectly configured with what these working learners, as SNHU calls them. So figuring out how do we get transcripts, and do you get credits for those transcripts? SNHU just took that on. Which used to be a huge burden for later life learners. Financial aid. Kids will take months to figure that out, and what SNHU realized is, hey, if someone's looking for financial aid late at night, if we can get on the phone with them and have a conversation, we can dramatically increase the odds of their actually matriculating with us.

For the college age, the young kids, they have academic advisors. SNHU has life coaches. The 18-year-old kid gets an email saying, hey, you better turn in your paper, or you're gonna get a failing grade. The life coach reaches out and says, hey, we see that you haven't submitted assignment, is there something going on in your life that you need some help with? And it's just an entirely different mindset and skill set and set of capabilities, which makes SNHU's success very, very hard to copy. And the final thing I mentioned here is the importance of wrapping that experience and that proposition in a powerful brand, which provides all sorts of energy and efficiency and leverage for linking this proposition in the minds of the target customers, so they employ it and pull it into the fabric of their lives.

There are lots of definitions for brands. This is the one I like. Jerry's a dear friend, and this was one that he and I developed working together, and I think it really captures what great brands do. They're shorthand for an experience that are encoded in the mind in the form of a story. And if you think of the brands that you see instantly, and trigger subconsciously an experience or a story, the ones here on the left probably aren't familiar, but of course, everybody knows the Boston Red Sox. And I see that logo, and I immediately think of listening to Red Sox games with my grandfather on a crappy AM radio, and I think about taking my daughters to Fenway Park. And it was interesting, I actually was having a conversation with a woman a number of years ago, and we were talking about, I don't know if we were talking about the Red Sox, we were talking about this whole topic of category creation and innovation broadly, and she said, I hire American Girl Doll to do the same job you hired the Boston Red Sox to do, which is to create experiences and build connection with our daughters. And that's what powerful brands do, is they are built from the inside out on very strong commitments that companies make to their customers, and those commitments are expressed in experiences and wrapped in messaging that make it easy for customers to find and consume those brands in the moments of their greatest need.

So closing in on the finish line, this is a quick recap of the key dynamics of category creation. It is not easy. There are these powerful forces that impede our path, capability captivity, data dependence, and status quo bias, but if we can tap into these enablers, which are available. I don't want to say they're free, they take work, they certainly take effort. Category creation, may see it different. Category convergence we have seen in every single industry we've studied. But in almost as many, we have seen category creators transforming sectors that many have sort of written off as mature, or kind of price-based, as kind of a law of nature, and transform them to unlock powerful growth. It is hard work. The reward is there.

Kind of closing with Proust, it's really about learning to see with new eyes. And it's so easy to dismiss this stuff, and don't ever forget how unnatural this work is. It's incredible how many, maybe, things that become obvious in hindsight, without the benefit of hindsight, aren't obvious at all. Oxford English Dictionary incorporated the word luggage into the dictionary in 1596. I'm not the math major, but it's like 370 years later that Bernard Sadow was granted a patent for putting the wheels on the suitcase. It really shouldn't take that long. And it's not a criticism, it's just a reflection on how easy it is our minds to assume that the future is going to look just like the past. But for those of us who embrace the opportunity, category creation is… I don't want to say always, but it's almost always an opportunity. Thank you very much, and if there are questions, would be happy to answer them, and there are a few.

And, where is it? Over here? Oh. Okay, let's have a look. Battles of incrementalism. Is this more motivated by risk mitigation in service or shareholder value because the operations of the company are wired to eke out marginal gain? So this is a great question. It's really getting at, what are the sources of incrementalism, and is it really about risk minimization, or just because capabilities are aligned to make marginal improvements. And it's interesting because it's sort of tapping into, I think, two aspects there. One is sort of the data dependence. I shouldn't say this, but sometimes we talk about, like, the Campbell Soup problem, which is if you're Campbell's Soup, you know that canned soup is declining as a business. The problem is that canned soup's really profitable. And so when you start looking at other businesses, even though you know CanSoup is declining, that marginal dollar spent in some new business is always going to look like it generates a crummy return. And to the other part of this question, you've got these plants that are just cranking out the cream of mushroom. They really don't lend themselves to doing something else, and so there's a combination of the data and the shareholder drive for returns and these capabilities. This is, I think, what the psychologists call sunk cost thinking. And so it makes it really hard, even for smart, capable managers, to invest in category creation when they're sort of navigating this ship of cream of mushroom.

He said, how do you navigate the ever-changing goalposts and stairs? There's two… what I would say to that question of just sort of how do you navigate the changing dynamic of the playing field. In my experience, when large, established companies do things that you would sort of say seem unnatural, almost, like, let's go to PepsiCo creating Mountain Dew Kickstart, and I can think of literally dozens of other examples. Two things… let me say that differently. Three things… three things have been present in every single instance that I've encountered that. One is, there's a simple story of a person in a specific instance really struggling to realize some desired progress or experience. So whether that was Sheila Reif with her daughter and the Houston Road train station in London, trying to give her an injection of insulin, or these kids mixing Mountain Dew and orange juice in the store. There's a story that simply captures the essence of what the opportunity is. Second, there's a business case. There's math that says hey, this person is not just an outlier or some freak. There are lots of people who would like to play video games in their living room and connect with their siblings and friends and sons and daughters without having to master the complexity of learning how to use one of these consoles. So there is a story. There is a business case. And the third is there is senior-most leadership. There is a sponsor who says, I believe it, I get it, and I am gonna help you fight the forces of opposition and inertia to make it happen. And that last part, I can't be overstated enough, because we've seen too many examples of, say, mid-label executives having an insight, having a business case, but if there isn't somebody who's either the CEO or the president of business leader who's willing to kind of attach their name to a project to lead that category creation effort. Unfortunately, it becomes very hard to get the escape velocity required to create those… the investment, and determination and persistence over a period of time to create categories.

B2B decision makers. We've done this in B2B, and we alluded to the Nucor Steel example. I'm not convinced that B2B is necessarily harder or easier than B2C, but where we have seen it successfully play out is there are two things at work, and I'll be a little careful about, sort of, client confidentiality in this. But one is their sort of impetus for change. So that there is… the writing is on the walls that even though today's performance metrics look pretty good, if our financial benchmarks are, say, deteriorating, and it becomes almost inescapably true that our engines for historic growth and profit are unlikely to be the growth engines of the future. It at least creates some space in the mind that we need to think about creating a discontinuous or alternative growth engine, even as we continue to profit from our current growth. That's what's really, really hard. Because by the time that U.S. Steel and Bethlehem Steel realize that they need to respond to Nucor? Game's over. So you need to have the foresight to see, hey, we need to change.

One more new course story. We did a corporate off-site with them, and they had just finished, literally, their most profitable year on record. And their CEO, is a wonderful client and friend, Leon Topalian, gets out on stage in front of their 500 senior-most executives. He's wearing, and new course color is green, he's wearing a bright red shirt. And everyone's sort of wondering, why is Leon got right on? And he proceeds to tell the story, and I'm not a golfer, of Tiger Woods winning the Masters at Augusta with a record score, and in the post-tournament interviews, saying how he really needed to work on his swing. And Leon told this story as a way to say to folks, just like Tiger Woods at the peak of his performance, now is the time we need to change his swing. Because he had seen some data that says we need to think about different ways to create value and go-to-market models. And they did. They shifted largely away from just going to market in vertical product groups, and thinking much more about industry solutions and helping designers and architects in construction, for example, which consumes 50% of the steel that Nucor produces, solve complicated design and structural challenges. Which takes them out of that commodity-like business, and to have turnkey solutions for distribution warehouse fulfillment centers, and data centers. And so it was through this pivot away from product centricity to solutions orientation, spurred by some benchmark financial numbers, which maybe weren't as strong as they've been historically, provided the impetus, and then looking for opportunities to create value in ways that they hadn't historically, gave the board and senior management confidence to make changes, even though performance today was good.

And that's a good place to end, and that's one of the hardest things to do. It's a bit of the takeaway from the steel industry, is if you wait until you really feel the pain, or until it's obvious to try and create categories, the ship is usually sailed, and you need to start when you have the resources and just importantly, the time to actually do category creation so that it can be economically meaningful in the time span that you need, recognizing that historic growth engines might not endure forever. So we're going to have to wrap it up there for today. Thank everybody for sticking around and the questions, and we'd love to continue the conversation. So if this was at all interesting, reach out, and we'd love to hear more and talk more. But thank you all very, very much.