The 76/24 Category Value Rule
Choose category creation over competing for the value left behind
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 95%
The 76/24 rule reframes market analysis around value concentration rather than conventional market size or revenue share. Lochhead reports that category-science research found one company earning 76 percent of the total market capitalization in a typical technology category. The strategic question is therefore not merely whether a market is large or growing, but who designed the space and is positioned to capture its value. A company entering an established category should treat participation as an explicit decision to compete for the residual value rather than an automatic path to leadership. Teams can use the rule as a decision gate: identify the category leader, estimate value concentration, and determine whether they possess enough differentiation to create or redefine a category instead of accepting follower economics.
Origin
Extracted from Marketing Against The Grain from Christopher Lochhead's account of a category-science project whose findings were published in Harvard Business Review.
Core principles
- 01Evaluate category economics, not only market size and share
- 02Category designers are positioned to capture disproportionate value
- 03Entering an existing category implicitly accepts a follower position
- 04Strategic choices should consider total value captured, not just revenue
How to run it
- 1
Set the Category Boundary
Define which products and companies customers treat as alternatives. Keep the boundary specific enough that value concentration is meaningful.
Pro tip Use customer choice and problem definition rather than industry labels alone.
Watch out A boundary drawn too broadly can hide the actual category leader.
- 2
Calculate Total Value
Select an appropriate measure of enterprise value and calculate the category total. Use consistent dates and definitions across companies.
Pro tip For public technology companies, market capitalization can provide a comparable starting point.
Watch out Do not mix revenue share, valuation, and market capitalization without explaining the differences.
- 3
Measure Leader Concentration
Determine how much of the category's total value belongs to the leading company. Assess whether that leader also designed or defined the category.
Pro tip Look for evidence that customers associate the leader with the category itself.
Watch out Current value leadership does not always prove category authorship.
- 4
Choose the Strategic Game
Decide explicitly whether to compete within the existing category, redefine it, or create another one. Account for the value likely available under each option.
Pro tip Require leaders to state why competing for the residual value is attractive if they choose the follower path.
Watch out Do not assume that declaring a new category guarantees customers will recognize one.
- 5
Revisit the Decision
Track changes in category boundaries, customer language, and value distribution. Reassess the strategy when the leader or underlying problem changes.
Pro tip Include the concentration analysis in periodic strategy reviews.
Watch out Treat 76 percent as a research finding and heuristic, not an immutable law for every market.
In the wild
A startup considering an established software market maps the public valuations of recognized category participants. It finds that one pioneer holds most of the category's value. Rather than launching as a feature-rich substitute, the team investigates an underserved problem and designs a distinct category around it.
→ The team makes market creation an explicit strategic choice instead of unconsciously accepting follower economics.
Common mistakes
Using Revenue Share as the Only Measure
Revenue can show current sales without revealing how investors and the market distribute total enterprise value across the category.
Treating 76 Percent as Universal
The reported figure describes technology-category research and should be validated before applying it rigidly elsewhere.
Ignoring the Existing Designer
A team that never identifies who defines the category may unknowingly build its strategy around strengthening that leader.
Is it for you?
Best for
It is best for technology founders, investors, and strategy teams deciding whether to enter, redefine, or create a market.
Not ideal for
It is not ideal when market-cap data is irrelevant, unavailable, or distorted enough to make category-value comparisons misleading.
From the transcript
“one company earns 76% of the total market capslash market capitalization in any given market category.”
“The company that designs the space is best positioned to dominate the space.”
“you've made an unconscious, unquestioned, undialogued, undiscussed, unconsidered decision to compete for 24% of the value.”
From the episode
How To Be #1 In Your Industry
Christopher Lochhead