Leadership

Niche To Win, Baby – By Dave McClure

Photo by Benjamin Smith

 

Written by Dave McClure – December 2015

Curator: GRSG

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Don’t Go Big or Go Home. Go Small at first, then Iterate, Dominate, & WIN.

One of these things is not like the others.

Abstract: Startups are more likely to find product/market fit by narrowing their target demographic, understanding customer needs/benefit better, and building more focused & differentiated products along with more specific marketing messages that are better tuned to those audiences. Later, after getting initial traction with a small audience, startups can then grow their market and expand product offerings to go after bigger market segments.


Many investors give startup entrepreneurs this terrible piece of advice: Your ideas are too small. You need to think bigger & go after a larger market.Otherwise you’re not worth my time or money. We only want to invest in entrepreneurs who are changing the world & doing something REALLY BIG.”

What a load of horse shit. That’s the WORST suggestion for a startup just getting started, when it hasn’t quite figured out product/market fit yet.

  • Yahoo and Google both started out as simple interfaces with a directory or index of web pages that <1% of people on the planet cared about.
  • Facebook started out with pictures of college students who Mark Zuckerberg wanted to try and get a date with.
  • Twitter started out as a stupidly simple notification app that posted 140-char status updates to a very small audience of geeky people. Most of them didn’t know why or what to do with it.
  • Uber started out with a crappy mobile app connecting a small number of San Francisco nerds with a few taxi drivers who weren’t total alcoholics.

Most startups build crappy initial products for a small audience of users or customers, and the product is usually so terrible at first that it *BARELY* solves the problem, and is hardly better than nothing at all.

In fact most startups can be incredibly mediocre & still be very successful.(sounds so inspirational, right? i know, but stick with me for a minute…)

But that’s exactly the point: If it’s crappy but still works and/or is useful, that’s a great sign… that means there could be a lot more potential ahead.

Most founders think they have to be AWESOME for EVERYONE to succeed. In reality, they only need to be BARELY FUNCTIONAL and BETTER THAN ALTERNATIVES for a SMALL AUDIENCE, long enough to survive until next sunrise. Then they can gradually iterate & improve.

The secret is to find your Niche — that initial  combo that enables you to just barely beat your more established, mature competition with a much crappier product.

This strategy is called “Niche to Win”.


Most VCs (especially those with limited operational marketing experience, or with too much good fortune / a few big wins) have no understanding of this. They commonly & foolishly advise founders:

a) “You’re thinking way too small”, or

b) “Your market isn’t big enough for us”, or

(… sorry Vinod it may make sense at Series A/B, but not in the beginning…)

c) “We only fund Ambitious Entrepreneurs who want to Change The World”.

While this perspective isn’t completely irrational coming from VCs who manage larger funds ($250M to $1B+) who need big exits & returns to satisfy their investors, it’s incredibly unhelpful in the short-term for entrepreneurs just getting started, who may be a year or two from figuring out their eventual big market opportunity.

In fact it’s a bit counter-intuitive, but the crappier you are but can still findMinimum Viable Product success, the quicker and better you’ll be at identifying initial customer-problem opportunities that create the possibility your still-tiny startup can stay alive & iterate one more day.


Let me give you an example:

Suppose you’re a tiny, new startup working on products for women, and you’re competing against Proctor & Gamble, or Johnson & Johnson, or BabyCenter, or ShoeDazzle, or something huge & profitable & successful.

You feel like you can’t win right?

Like it’s impossible to beat those big incumbents.

But now consider: those companies focus broadly on a huge, largely undifferentiated market for women, with the only focus that they are between the ages of 18 and 65.

Now, consider if you NICHE TO WIN, you can focus on products for:
… women ages 25–40
… who have 2 or more kids age 3–7
… who live in urban areas
… who work for a living
… who make $50K-100K/yr
… who feel like they never have enough time in the day, and would pay good money for just a few more spare minutes.

Now, it’s actually quite easy to focus on a much more narrow demographic, research & discover their common problems, and build products & solutions that focus more specifically on these customers, rather than the broad market segment of all english-speaking women in north america.

Now, you can compete with a much less mature product but much more focused customers, more specific problems, more targeted marketing (that also probably costs less to acquire customers ready to purchase), and thus a more differentiated offering.

In fact, your product can be far inferior, far more expensive, far more profitable than a big competitor’s product designed for a much bigger, more un-differentiated audience, & crappy un-targeted marketing.

Also, because they’re a big company, they’ll move and innovate much slower than you, so you’ll always be ahead of them & they’ll never, ever catch you.


Ultimately, if you *do* want to become a bigger company, you’ll have to grow your market, change your product offering, & compete in multiple customer segments against those big incumbents — but in the first few months of existence, your job is simply to establish a foothold, to get an initial MVP out the door, and SURVIVE.

If that’s the goal, then focusing on a big, world-changing vision is EXACTLY the WRONG thing to do. Instead, narrow your field of view, find a very targeted demographic, and build a simple, crappy, focused solution that barely works, just well enough for that customer to pay for.

so in the slightly paraphrased words of Al Davis: “Just Niche to Win, Baby.”

(dmc note: this blog post in slightly different form was originally posted on svbtle.com about 3 yrs ago… i’ve updated a few things).

Click here to see the original article

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