How many different business models are there? According to Mike Volpe, there are just two. You can either create a new category, or you can carve out a niche in an existing one.
Mike would know. While he’s pursuing a “niche” marketing strategy as CEO of Lola.com, Mike helped built the “inbound marketing” category from the ground up as founding CMO of HubSpot.
To hear Mike explain the difference between these two strategies, listen to my interview with Mike on the FlipMyFunnel podcast.
Here are a few things you’ll learn from our conversation:
- Why “the old way of doing things” is a bigger barrier to growth than competitors.
- The one type of person every aspiring category creator needs to have on board.
- Why Mike choose NOT to create a new category in his current role at Lola.
Interview with Mike Volpe: Summary
Prefer to read? Here’s a condensed and edited transcript of our interview.
John Rougeux: Mike Volpe joined HubSpot as part of the founding team went on to build the inbound marketing category and establish HubSpot as its leader. He’s gone on to invest in and advise a number of technology companies, and he’s currently the CEO of Lola.com. Today, Mike’s going to share his thoughts on what it takes to build a category-defining company.
Mike Volpe: I’ve been doing B2B marketing for about 20 years. I was part of the founding team, at HubSpot and grew that through an IPO. Since then, I was COO at a cybersecurity company called Cyber Reason, where we also grew a ton. I just joined Lola about eight months ago as CEO. So I’ve done a lot of marketing, some sales. I’ve invested in about 35 or so companies as an angel investor. I’ve been on five different boards of directors. I just love talking about startups and growth.
How Does Mike Define Category Creation?
John Rougeux: Good deal. I’m curious to hear your own definition of category creation.
Mike Volpe: One of the examples I often draw is that there are two fundamental ways to go to market. the category creation way or it’s the “better mousetrap” way. The examples I use are HubSpot and Zendesk. Both companies were founded within the same 12 month period, went public within the same 12 month period, are both worth around 7 or 8 billion. But they did it in very different ways. HubSpot created this category called inbound marketing. Our sales pitch was very evangelical and convincing people that they were doing marketing in the wrong way and they needed to change how they thought about marketing.
Mike Volpe: Zendesk, on the other hand, was just customer service software. But it was way better than all the other solutions out there. Their sales pitch was much more about being an easier, better, simpler way to do it. It was much more about letting people experience the software for themselves, where at HubSpot, it was like teaching people a new way to do things. Part of category creation is convincing people that the way they’ve been doing things previously is wrong and that they need to think about a new approach.
Mike Volpe: When you’re creating a new category, you’re saying that there is a new tool that doesn’t exist in your toolkit. Often that requires an entirely new process and a broader solution. In category creation, there should be a way for people to embrace the movement without even buying your product. Hopefully, your product makes it easier. And most people who embrace the movement do buy your products.
John Rougeux: So you’re selling people both on a philosophy and your products, but ultimately the category has to be something bigger than just you and your own company. There’s a kind of movement.
Mike Volpe: That’s right. Your goal should be to make the category really big. Zendesk wasn’t just trying to get new people to buy from them, they were also trying to get to switch to them. But at HubSpot, the size of the inbound marketing market was just barely greater than zero on day one. Our goal was to make the market a lot bigger and remain number one.
Marketing Strategy In Category Creation is Like Preaching
John Rougeux: How did your marketing strategy change when you went from a more traditional approach to when you switched to the category creation approach?
Mike Volpe: It was really fun to do category creation because you could do a lot of things that were different and unique. You’ve got to have an enemy, but it wasn’t a company, it was a process. It was the idea of cold calling and spam and the sort of things people could get much more emotional about.
Mike Volpe: That focus on the problem made people get very emotional about inbound marketing. They would say things like “inbound marketing changed my life, got me to take a new career direction, helped me accelerate my career.” I think you’re more likely to invest in very, very top of funnel techniques. Your goal in the early days of doing category creation is just to have more and more people to read your content.
Mike Volpe: It’s like you’re preaching at the front of the chapel and you want more people to hear you preach. If you’re doing the “better mousetrap” approach, though, the market’s already been built, the chapel’s full of people and you want them to pay you money. You have to have a lot more long-term thinking. And you probably end up investing a little bit less in bottom of the funnel things. Because if somebody makes it halfway through your sales process, they’re probably bought into your philosophy. And if they’re bought in your philosophy, there’s not going to be a lot of other competitive products.
John Rougeux: Does that mean you invested more of your messaging around the larger problem and shifted away from HubSpot itself?
Mike Volpe: In the early days, we did some research and there was a huge number of people who had heard of HubSpot and a huge number of people who had heard of inbound marketing. But the number of people who could describe us accurately was very small.
Mike Volpe: After three or four years, we started talking a little bit more about customer case studies and all the typical lower funnel types of things. But we never would have been able to do that if we hadn’t already built a gigantic audience early on. Job number one is building out that category and the overall market. And then once it kind of takes a life of its own, you can kind of shift your focus.
Mike Volpe: Early on, people will buy from you because they get excited about the movement. And then once they take a demo, they’ll understand who you are. But you need to get a lot of people excited about the movement first.
Big Ideas Can Take Time to Catch On
John Rougeux: How did it feel when you were first starting to evangelize this idea of inbound marketing? I’m sure some people didn’t get it.
Mike Volpe: In the first few months or even six-plus months It felt like we were standing on a soapbox in Harvard square and yelling at the top of our lungs, and no one was listening to us. It starts slowly, but then a few people stop and start to listen to you. And you start to get some comments on your blog post and people start to retweet some things and you start to get that positive reinforcement.
Mike Volpe: Then it grows and spirals from there, which is great. But I will say it is very, very slow going. Like you feel like you’re screaming into the abyss and you just need to keep screaming. It’s really hard because you get very little feedback. I mean, I remember the first couple of blog posts I published and it was like crickets. But you need to keep going and you need that sort of blind faith. It’s almost impossible to do AB testing at that stage. It’s more important that you understand the buyer and market well enough to know that you’ve picked something that’s the right category. But it’s difficult to be an evangelist.
John Rougeux: It sounds like you can’t split test your way into building a movement. You have to do your homework, think about the vision you want to achieve, and then go for it.
Mike Volpe: Right. And you don’t know how big it’s going to be. Once you’re big, you might not want to create new categories. You might just be able to use your brand and get into other categories. HubSpot has gone into other markets and their strategy has been number one, it’s integrated with HubSpot. So if you’re using HubSpot for marketing, you should use it for CRM and service desk and all these other things.
John Rougeux: Sure. It kind of goes back to that adage about it being easier to sell to your existing customers and to go out and try to find new customers. Apple is a classic category creator. But just recently they announced a slew of new product announcements and they were all in existing categories. There’s like a streaming music service, a credit card, a bunch of other items. And it sounds like that’s exactly the approach that you just described.
Mike Volpe: Interesting. In some ways, they’re category creators, but in some ways, they’re not. MP3 players existed before the iPod, but they kind of made the category a hundred X bigger because they made it simple. So yes, they’ve created new categories, but it’s in some ways they’re sort of doing the big company thing.
What Skills Do Category Designers Need?
John Rougeux: If a marketer wants to guide and create a new category for his or her new company, what do you think the most important characteristics to have are?
Mike Volpe: Someone in the company needs to be super passionate about the topic and an expert in it. We got lucky that a number of us on the early team at HubSpot we’re very passionate about inbound marketing. I think it would have been hard for us if four or five engineers trying to talk to, to be able to understand their pain show them that we knew what they were going through.
Mike Volpe: It comes off as inauthentic and ungenuine if you’re an outsider trying to tell this community that there’s a new way to do the thing that they’ve been doing. The right person to do marketing in that kind of a world would be a storyteller, a brand-centric marketer.
Mike Volpe: A Lola.com, we do corporate travel software and we have a bunch of people here that are incredibly passionate about travel. Our business strategy is definitely the better mousetrap. And we have like the highest ratings compared to anyone else in the market. Our strategy has been like we’re a better mousetrap. But there is a broader movement where maybe there’s a little bit of category creation on top of what we’re doing. But the thing we want to make sure of before we do that is that we’ve got multiple people that are super passionate about that new potential category.
Category Creation Isn’t The Same as Brand Awareness
John Rougeux: Do you find that there’s kind of a different payback period between the better mousetrap approach versus a category approach?
Mike Volpe: I think people often conflate category creation with doing lots of billboards and all this other non-direct response kind of advertising. At HubSpot, we did a lot of content, a lot of social media, PR, like all those things like low-cost things that also had a demand generation component to it. So most of our blog articles ended with a call to action to download an ebook, do a white paper sign up for a webinar or whatever it might be. We also created a free tool called website grater that generated a ton of activity for us and kind of diagnose the problems that people were having. So we were able to kind of tie the creation of the category to demand generation so that we got a relatively short payback on our investments. I think there probably are categories that get created from you know, tradeshow, sponsorships and more traditional types of advertising that are going to have a much longer time to pay back.
Mike Volpe: I would encourage people to think of ways to do category creation through demand generation. If you’re saying the right things, then every direct response is also a branding piece. Especially when you’re small, there’s an opportunity to do a lot of more direct response kind of marketing that also helps you build the category.
John Rougeux: So it’s not about just doing a bunch of brand awareness campaigns, but focusing on demand generation tactics when possible and the weaving that message about the category into all of those kinds of tactical activities.
Mike Volpe: When you do the very top of the funnel stuff, make sure there a path that leads down the funnel. But, every company’s different. If your marketing budget is $100 million, I could argue that $10 million in billboards is a really good idea. But if your marketing budget is $1 million, I would have a hard time arguing that $100,000 in billboards is a good idea.