The 3 Marketing Metrics To Rule Them All [Part 3]: How To Attract Investor Interest, Drive Market Capitalization, And Claim Your Place As Category King
Your #1 job when driving market cap for a growth company is getting people to understand the category potential.
Dear Friend, Subscriber, And Category Pirate,
In January 2022, Apple became the first company to hit a $3 trillion valuation.
This exponential valuation was a result of its entire ecosystem of products (smartphones, computers, watches, etc.), channels (retail stores and e-commerce), and services (App Store, Music, and Apple TV) creating just the right combination of innovation and inertia to turn Apple into a near-ubiquitous brand. When the news broke, The New York Times created a graph to show Apple’s market value growth over the years.
While Apple may not have predicted its entire ecosystem back in 1976, it did understand the potential for personal computers.
In 1984, 8.2% of US households had a computer. Compare that to 2022, when 93% of US households had a computer. Knowing and capitalizing on that potential is what eventually led Apple to become one of the top personal computer brands and create a new music category, a new smartphone category, and a new wearable technology category—and reach a $3 trillion valuation. Today, according to Forbes, 92% of households in the US, Europe, and Japan have one or more Apple products, 64% have five or more Apple products, and 39% have 10 or more Apple products.
It was crucial for Apple to understand and evangelize its category potential early on.
One of the most important things marketing that’s grounded in Category Design does is help create the economic conditions for your company to win.
This includes creating new market categories and, in turn, net-new market cap.
Said in a different way: if investors think the potential growth for your company is substantial, they are more likely to bet on you. This is true for both customers and investors because customers and investors are people.
In this sense, Category Design marketing drives market capitalization.
At first, this may seem like a controversial or confusing statement. Why? Because the vast majority of people think market cap is a function of your numbers. They believe prior performance is the driving force of a company’s valuation, so they obsess over metrics like revenue, margins, EBITDA, cash flow, and industry comps. These all matter, but there are other material contributors to market cap expansion that seldom get discussed. For example, what explains OpenAI achieving a valuation of $29 billion before it collected a dime of revenue?
Something powerful is at play, beyond financial metrics.
(You’re pirates, so we know you’re capable of thinking differently about this!)
Financial metrics are rarely the drivers of valuation for early-stage venture-backed tech startups or Category Queens that are valued 6x more than a “regular fast-growing company” on the Fortune 100 fastest-growing companies list. But the reason people rely solely on historical financial metrics is that they don't understand Category King economics. They don't understand the compounding value of network effects. And they don’t understand that future potential is more important than past performance.
(The exception here is a certain category of high-growth/higher-risk investors who are willing to bet on a different future—one where your company emerges as the category leader and earns 76% of the new value created.)
This is why the value of high-growth companies like Tesla, Apple, Microsoft, or Amazon is not based solely on their past performance. Instead, a major driver of their market caps is predicated on the belief that bigger, different days are ahead. Growth investors further understand that the single biggest contributor or barrier to a company’s growth is the size and growth of its category.
(If you want to sell Bibles, for example, there must be Christians. 🙏)
Now, it’s no secret the company with the biggest market cap is often the most sustainable.
Today, Apple and Microsoft are number one and two on the S&P 500, representing 13.3% of the total value of the S&P. (Take a moment to wrap your brain around that!) The reason is simple: investors think Apple and Microsoft’s futures are bigger, better, and different from their pasts. Of course, past performance matters. It gives investors high confidence the companies will keep growing.
But, make no mistake, investors are betting on their futures—not their past.
The number one market cap company in a category always wins. Always. (And we’re not talking about some kind of B.S. magic trick here.) To build enduring value over time, you must use marketing to drive category potential and increase the overall category size and growth rate.
So, we’re going to explain our thinking and share ways to work this into your strategy.
(If you didn’t catch Part 1 or Part 2 of this series, you’ll want to read those first to get the most value from this mini-book.)
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