Out Of The Existing Market Trap with Christopher Lochhead

Thanks for pressing play. If you love the serendipitous magic that can only occur in a real conversation, you're in the right place. This is Christopher Lockhead, Follow Your Different, the number one real dialogue podcast for business leaders, entrepreneurs, and category designers with a different mind. Our guest today is the legendary Christopher Lockhead himself, delivering a fiery masterclass from the Constellation's Connected Enterprise 2025 Conference. He reveals why nearly every company leveraging the AI boom is about to fail, a potential $13 trillion disaster. Chris drops the hammer on the existing market trap, arguing that if your strategy involves simply bolting on an AI assistant or co-pilot, you're making a pussy move and you're fucked. AI is the most significant innovation in history, but only category designers, the true visitors from the future will harness its power. Chris breaks down why different wins, better loses, and how legends like Sam Altman, Jensen Wang, and Steve Jobs created entirely new markets to capture 76% of the economics. This episode is your blueprint for escaping mediocrity and leveraging AI to design the future. Strap in and buckle up. If you appreciate this podcast and want to support our work, go to CategoryPirates.com and subscribe to The Category Pirates, the only business newsletter written by and for pirates. For the small percent of entrepreneurs, creators, executives, and category designers who want to create markets of the future, CategoryPirates.com, get there today and sign up. Now, hey ho, let's go. Ladies and gentlemen, please welcome founder and CEO of Constellation Research, Ray Wang. Got to welcome back one of my favorite folks, Chris Lockhead. Number one, Apple podcast for long form, legendary CMO, and of course one of the best authors around a concept called category design. What would say you're the godfather, maybe the founder of category design? That would be a stretch. I think my mother thinks that. Oh, okay, good, good. So, but here's the thing, right? Got AI going. Everyone's an AI company. It looks like a mess. You're in the middle of trying to differentiate what you're delivering and you're offering and everything looks the same. You need to go to Chris. What would you say? Well, here's a big aha. So, we recently did a major kind of research initiative to look at the amount of investment in AI over the last five years or so. And then we took that number and we just held it up against the fact that roughly 90 something percent of startups fail. And here's the aha. We are about to lose $13 trillion in AI investments. Wow. Why? What's going on? It's just like money. Is it like the internet where you're like pets.com or something? A little bit. What's going on is sort of the greatest ironic tragedy, which is AI is, as far as we're concerned, the greatest new category of innovation ever created by humans. And we talked about why that's the case if it matters. And really, there's two types of people and therefore two types of companies. There are what most people are doing, which is applying AI to existing markets. And so, in that sense, they make a decision to use AI to make things better. And you hear it in the way that they speak. "Well, we're the chat GPT of yadda yadda yadda." Right? Or, you know, "We're trying to be the Nvidia of..." Right? And so, everybody or everybody, too many are taking the status quo as it is today and then trying to chase that market. So, sadly, most people who think they're innovating are falling into what's called the existing market trap. And the legends don't do that. No. So, does anybody know what the sum total market demand for generative AI was in October of 2022? Zero. Today, generative AI is the fastest growing category ever created by humans. And chat GPT is the fastest growing startup. So, you would think, people go, "Oh, then what there is to do is figure out how I create the markets of the future with AI." Because that's what Nvidia is actually doing. That's what open AI is actually doing. Right? But instead, they don't connect that. They go, "Oh, like them, but a little better." Or, "We're going to do ERP just a little better." And here's another great example. One of the things we teach category designers is, listen to the words. Most people don't listen to the words. Listen to the words because language creates meaning. And a demarcation point in language creates a demarcation point in thinking, which creates a demarcation point in action and spending. Okay. So, what are many companies calling their AI stuff? Oh, this is our co-pilot. It's our AI co-pilot. Yeah. This is our AI assistant. We have an assistant now with AI. All right? And this is the language they use. Now, when you say co-pilot or assistant, what, you know, years ago, Ray, I have a lot of tattoos. And years ago, my mother-in-law, Nellie, God rest her soul, was visiting with my dad. And I'd gotten a new tattoo. And I said to her, you know, "Nellie, how do you like my new tattoo?" And she turned and she looked at me and she's a very, very elegant woman. She turns and she looks at me and she says, "I'm really glad you like it." And so, that's an example of the unspoken being louder than the spoken, right? So, when we say, oh, this is our AI co-pilot. This is our AI companion, right? What are we saying? We're saying, well, there's our real thing. You know, the thing that we sell, that we do, the thing, the main thing. And we've been doing this thing for a long time. Matter of fact, we might even be the category king in the thing. And now we're going to add AI to it. Like, you ever seen a motorcycle with a sidecar? You ever seen one of those go around the corner where the sidecar is on the outside part of the corner? I don't know. Looks terrifying to me. But anyway, so AI is being sidecarred on to make better the way we currently do things and to create better products and services in existing markets that have been category designed or created by somebody else. So, when you say co-pilot, the unspoken is, AI is not the thing, our thing's the thing, and we're sidecarring AI. That sucks. You're fucked. Yep. AI's the thing. AI's the thing. And what you don't want to do is automate the status quo with AI. And what you sure as hell don't want to do is chase an existing market with an existing category king or queen because here's the other a-ha. For our first book, we did this data science research project, where we looked at every venture-backed company from 2000 to 2015, and we asked a question that hadn't been asked before. I know this because we weren't looking for the data and no one else had it. The question we wanted to ask is not what percent of market share goes to the leader, that question's been answered. We know that. We want to understand what percent of market cap, that is to say total value in any market category, as measured by the value of that, all the companies in the space, market cap or valuation for private companies. So, we looked at every venture-backed company from 2000 to 2015, we said what percentage of market cap as a proxy for total value created in the space goes to the leader? That number is 76%. No one's going to catch chat GPT. It's already over. They can create sub-neashes, right? So, there's produce and then there's vegetables and then there's fruit and then there's peas and then there's bananas, produce being the mega category and all those being sub-categories. So, are there going to be massive amounts of sub-categories of capability, functionality, agents, automation that we can create new categories with? Absolutely. No one's catching chat GPT. It's over. It's over that it's over and yet everybody is chasing either A, the 24% that's left or B, it would do a pilot, it would do a co-pilot. We just add it to the thing. No, no, it's the thing. The UX of the future is a prompt. That's the thing. We do everything with AI. And so, sadly, the reason 13 trillion is about to get lost is those two things. A, we're going to bolt AI on and we're going to miss the new category in our space because the company that's going to take us out is not bolting on shit. They're AI first. You can clap for that. They're AI first and most importantly, when you're going to category design a new market, your reference is not the competition. Your competition's not your competition. The competition is the way that it is now. It's the status quo. Category designing companies and people create different futures. We all have this, yes? We're living in Steve and Jonathan's different future right now. Thank you to them. They envision the different future. It wasn't an extension of the past. It wasn't an improvement to the Blackberry or the Palm Pilot or the I don't know what. It was a completely new category, a completely breakthrough technology strategy, et cetera. So, category designers are visitors from the future telling us how it's going to be. And they stand in the future and they pull the present to that future. What they don't do is go, "Oh, how do we make email smarter?" Well, do ahead of a co-pilot, right? That's not what they do. And yet, that's what we're doing. And so, $13 trillion will get lost. That's the bad news. Here's the good news. My buddy, David Sacks, who's now the, he's an entrepreneur turned VC and he's now the White House czar for AI and crypto. Our federal government just recently revised the GDP numbers up to 3.9. So, marketing math, let's call that 4%. Sacks says 40% of that is AI. 40%. And so, the breakthrough in thinking is how can we use AI as a, as the biggest mega new category of technology ever invented by humans to category design the markets of the future? And the people and the companies that do that will be worth trillions. And the people who do the bolt-ons are fucked. Okay, we're done. No, way actually, you know, one of the things that we wrote about is this notion of AI natives and AI exponentials, right? You can't do the bolt-on, but we've got AI leadites that are trying to act like AI natives that you're bolt-on. That's your co-pilot problem. But to get to an AI native, how do you do that? Let's say you already have a set of products. You're stuck in the existing market trap. You wrote a book about this, an amazing book. I carry that with me every day. I actually have one in my lap in my backpack. How do you break out? Thank you, handsome. Isn't he good looking? I don't, I don't know how he gets better looking every year. How do you break out? This is the thing. Everybody wants to know how to break out. Yet, everyone's doing these, since this is your podcast, we're going to put, everybody's doing these pussy moves to get out there and it doesn't work. Yeah. It centers around a couple of key foundations of category design. The first one is better versus different. So almost every book written about strategy, almost every book written about entrepreneurship, almost every book written about marketing is based on Michael Porter competition, right? Five forces, all of that, right? And when somebody says innovation, when somebody says marketing, when somebody says entrepreneurship, we're going to go do something entrepreneurial. We're going to launch a new innovation. We want to do some breakthrough marketing. The unspoken like Nellie's unspoken is what we're going to do is we're going to invent a better carbidinulator, better, faster, cheaper, smaller, bigger, fatter, thinner, whatever it is. And we're going to launch this new carbidinulator into the world, into an existing market where there's demand. And we're going to chase that demand. And we're going to use marketing and sales and we're going to use the value and technology and capabilities of our product to show people that our carbidinulator is materially better than everybody else's. And once they understand that, we'll win. That's the strategy we all got trained in. And we believe it like we believe in oxygen. We never think about it. We never question it. Now, raise your hand if you spent the morning posting on Google Plus with your Amazon Fire phone. Yeah, exactly. Now, why didn't you do that? Both companies spent roughly a billion dollars launching new products. Both companies have massive brands. Amazon says there's these brands in the world. Oh, and they have the best distributions. They just extend the brand and the distribution. You put it on the phone and they're going to win. Right? Why didn't it work? Why is Google Plus a billion dollar hole in the ground? Everybody agreed it was a better product. Oh, Google has the best distribution you win. Best technology, top five brand. All you need is a brand and distribution and a good product. Everybody said they like the product. Lost a billion dollars. Why? Because better forces a comparison. Different forces a choice. You can clap for that. For the last 40 years, the chief marketing officer of PepsiCo, on January 1st, has decided that they're going to Venmo their marketing budget to Coke this year. Sorry. Because when I, is somebody from PepsiCo here? We've got the PepsiCo bottler here. But keep going. Keep going. He's fine. It's his dad's company. Sorry. You're not the CMO and if you are, we should go have 200 Scotches and we'll talk about it. But the minute I say four out of five people say Pepsi tastes better than Coke, Pepsi tastes better than Coke, Pepsi's better than Coke, Pepsi's better than Coke, Pepsi's better than Coke. What's in your mind? Thank you for the Venmoing of the marketing budget. It doesn't matter who thinks in it. Look, liquid death. A blind taste test, 10 out of 10 people said it was water. Why did they win? It's freaking awesome. New category. It's not, it's canned water, not bottled water, right? And they evangelize the evil of plastic. And then they wrap it in legendary branding that looks like some combination of a craft beer and a fucking monster or ding dong, I don't know what, and make it fun, right? So fun legendary branding, fun name for young people, different category, different brand, papal. And from a product perspective, blind taste test, it's all the fucking same, right? Well, that may be the case, but they're the first new category of water in, I don't know, you tell me, maybe a decade or so. So they may have slowed down now, I have no idea. But keep going, keep going. That's not that good. So different wins, that's the bottom line. Different forces, a choice. Steve Jobs famously said, look, we do not want to be compared to anyone, we want everyone else to be compared to us, right? That's exactly what Sam Altman's doing, that's exactly what Jensen's doing, that's exactly what Sarah Blakely did. She refused to let them call it a girdle. She refused to let them call it pantyhose or control top pantyhose or any of that shit that came before. She said, no, it's a new invention. It's different. It doesn't even go in the pantyhose part of the store. It goes in a new part of the store. It's a new invention called shapewear. It's not pantyhose 2.0, control top. Exactly, right. And so because she declared it a new category with a different use case, she wins. And so different wins, better loses. And when you better invites a comparison, who the fuck would ever want to do that? Like other vendors here? Yeah, go for it. Okay. If you're a technology vendor and you have ever put on your website or God forbid your homepage that you just got ranked a leader in the Gartner Quadrant, you failed an IQ test. This is why he's there for us. And the reason you failed an IQ test is you're putting on your fucking homepage. Here are the people you should compare us to that were sort of a lot like, but maybe better. That's what you're saying. As opposed to we invented this market category, we invented this technology, we created this new capability, we're solving a new and different problem in a radically powerful different way. And we stand alone and so doing. That's what Sarah did. That's what Jensen did. That's what Sam Altman's doing. That's what Jobs did. And it doesn't matter how big your company is. I live in Santa Cruz, California. And in Santa Cruz, California, we like to eat a lot of pizza. And we like to buy local. So yeah, there's some little greasers and shit, but mostly it's local pizza shops. Well, guess what? Every pizza shop in Santa Cruz, for the most part, like most pizza shops in most American cities, compete on better. Our pizza is better than this. We have the new whatever it is, right? Right. And so, and we have two where we live, Pleasure Point Pizza and Pizza My Heart. They're both great. And you go, which one do you feel like? Oh, well, we had Pleasure Point two weeks ago, so we'll have Pizza My Heart. They're interchangeable. So during COVID, a bunch of two guys who, one of whom grew up in Detroit, decide they're going to launch their own pizza place to try to survive during COVID, selling Detroit style pizza, which is sort of like a thick focaccia, if you're not familiar. But they're in California, they're in Santa Cruz, they smoke a lot of pot. They want to bring their own thing to it. It's not exactly Detroit. So at first, the place is called Bookies, Bookies Pizza. And at first, they call themselves Detroit style pizza. And then a bunch of people from Detroit say, "Hey, look, you got all this foofoo shit, California shit you're doing here." This is not... So you know what their category design is today? And if you Google, you can do it right now, Bookies Pizza, Santa Cruz, what you'll see is a tagline that says the following, "Inauthentic Detroit Pizza." So if you say, "Hey, sweetheart, let's have some pizza tonight. Oh, well, maybe it's this, maybe it's that. What do you feel like me?" Or if you say, "Well, you know what? I feel like inauthentic Detroit Pizza." There's only one choice. And so whether it's Sam Altman deciding that in spite of the fact that the place that you put the data for 40 fucking years or 50 years has been called a database, he says, "In Gen AI, we're not calling it that because you can't use old words to describe new things. Because otherwise, people will bucketize you as the old thing. And if you're telling them you're the new thing and you don't want to be the old thing and use the language of the old thing, guess what? You're the old thing." And so he goes, "We're not calling it a database. We're calling it a large language model. For 50 years, place where you put the data is a database. Maybe a data lake, maybe a warehouse, but it has the word data in it. No." And when we optimize the database for performance, which is how we might have spoken about it in the prior categories, no, no, that's not what we're doing. We're training the AI on the data. It's training on the data, right? And we're not querying the database. We're not pulling a report. And for the love of God, we're not doing a search. What are we doing? A prompt, a demarcation point in thinking creates a demarcation point in value, right? And so different wins, better doesn't. And so those of us who are trying to create breakthrough different futures with AI, and we tell the world that's what we're doing, that's called category designing the markets of the future. Whereas what most people are going to do is they're going to go, oh, we're kind of like BI but better with AI, right? That's what they're doing, right? That's bankruptcy. What's the future is how do we get to be a new category of technology that changes the way the world lives, works, or plays? And we become the category king in a market that we designed on purpose, such that we earn 76% of the economics. That's the game in AI. And one of the most powerful things when you sort of delve into category design, you realize that new categories create new categories. So you and I buy one of these. And then we drop it and go, fuck. Guess what? We need one of these. It's called a case. So new categories create opportunities for new categories. Today's solutions rapidly become tomorrow's problems. And so AI is the biggest innovation category in history, and it is the springboard for the biggest creation of new categories in history. And those that think different, I want to category design the future, versus those that say I want to extend the past, chase an existing market and/or do an assistant, that's the big difference between who's going to thrive, both as an individual. If you do this yourself in your career, you'll be wildly successful, wealthy, creative, and innovative. And if you just try to use AI to do what you've always been doing, you're going to be replaced. We all understand that. And so fundamentally, the future belongs to those who can create radically different futures and markets with AI as opposed to trying to re-imagine the past. Ladies and gentlemen, a master class on category design. Please give it up for Chris Locke. We have time for two questions real quick. Okay, great. We'll go quick. 30 seconds, short questions. Anybody? Oh, here we go. Here we go. Oh, we got one. Go ahead, Denise. Hi, this was wonderful. And I couldn't agree with you more about especially innovators who are just remixing old ideas. And I think that there's something that you're touching on here that one of my favorite sayings is a leader leads before anyone is following them. And that takes a lot of courage. And I think that that might be part of the problem is that very few people will step out with that kind of courage ahead of something to actually lead a category. So what would you say to people to encourage them to have more of that kind of a mindset? Do you want the HR answer or the real answer? Grow a set of balls. Look, here's the aha guys, right? Many of us spend more time working than we do with the people we love in our lives. So if we're gonna work, do work that matters. Do legendary work. Who gives a fuck about getting fired? I've been fired more times than I can count. It doesn't matter. What matters is, look, if you think about what's really going on here in AI, AI is making the value of existing knowledge closer to zero every day. So what that means is the category that Peter Drucker created 70 years ago, I think the book was called Land of Tomorrow, something like that, where he introduced the category of knowledge worker. And a knowledge worker, by definition, go look it up on Wikipedia, is somebody who acquires valuable knowledge and gets paid to apply that knowledge to affect an outcome or a result. Well, guess what? Our internal AI knows more about category design than me. So if you want to have a conversation about category design with an expert, you should meet Lucy. That's what we call her, right? Not me. Why? Because Lucy can hold all existing information about category design in a way that no human brain ever could. And makes it as close to free as it's ever been. And so in a world where knowledge is getting, the value of knowledge is decreasing exponentially, and the vast majority of white college knowledge, white collar knowledge workers, get paid to apply existing knowledge, knowledge workers are in deep shit. So where's the future? The future is who can create net new knowledge that creates net new value with AI as opposed to apply old knowledge to affect an outcome. And so the reality is the only safe place is the courageous place. And the courageous place is to stand and look forward, get to a future that you want to be part of creating, and then look backward to the present and say, how do I use AI to pull the present to the future? That's what you want to get paid to do. It's more fun. You get paid a lot more. You get to be part of creating. This is the greatest time in history to be fucking alive. And for those of us in tech, and so if you're not making a conscious choice to grow a set and live on the edge of this stuff, and literally, look, the definition of what a human being is right now is changing in front of us. If you are 40 years old or older, you are the last native analogs to live. No, really, myself included, right? And the people that live going forward, the people who are younger than us, are the first native digitals. That is to say, they've grown up in a world where this is their primary experience of life, not this. And here's my proof. When Gen Z shows up at the house, they're presented with a very well known analog problem. You're at the front of the house. You want to let the people in the house who invited you over know you're here. There's a very known analog problem with a very known analog solution, right? What does Gen Z do when confronted with an analog problem with a well-known, well-used, billion-year-old analog solution? What do they do? Text here. Why do they do that? Because their first life is here and their second life is here. And so, we're in a native digital world, right? Now, that could be terrifying if you're a native analog. I'm as native analog as it gets, but it's exciting because we get to be part of creating this future. And so, I would just answer your question again by saying, look, do you really want to spend the last however many years of your career making the status quo incrementally better? Or do you want to spend whatever left is left of your work life making a massive material difference? Give it up, Chris Lockhead, one of a kind! That was the legendary Christopher Lockhead. You know what to do. See the show notes on your podcast player or visit lockhead.com for more Chris goodness. Don't forget, podcasts make great gifts. Share two podcasts you love with two people you love, and make sure you follow us today on your podcast player of choice. We'd like to thank you. We appreciate you investing part of your life with us. Before you go, ask yourself, are you extending the status quo or building a different future? Now is the greatest time in history to be alive. Discover the secrets to shaping transformative futures and conquering markets with the premier newsletter designed to buy pirates for pirates. Category Pirates. Subscribe today at Category Pirates.com. Also want to thank our friends at Virtuous AI. You see only the companies that execute win and today closing the execution gap to run at AI speed is critical and in particular small growing and mid-sized businesses have a huge opportunity now because they can out execute larger companies. Our friends at Virtuous AI have revolutionized how mid-market companies operate. 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Everything is the way that it is because somebody legendary changed the way that it was. And marketing that doesn't produce revenue is called Arts and Craft. Produced and edited by me, Jason DeFillipope. Sarah Knox and Jamie Jay handle the website and technical execution. Show notes by GM Simon. RJ and EXPobus do our web development. Cedric Beros does our graphic and web design. Our law firm is Weed and Jack. Our accountants are three balanced sheets to the wind. Woohoo! We record on squadcast.fm. Johnny Cash was right. Listen to the Ramones. Thanks, Deanna. In eight columns, this oddcast really ties the room together. Our deepest apologies go out to Ty Lopez. Sorry, Ty Ty. We've just ran out of time for you. Till next time, stay safe, stay legendary, and follow your different.