Why Your Fear of Committing to Niche Markets Will Kill Your Startup

Niche Markets Win Mass Markets for Startups
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

I get it.

Limiting the size of your market is counter-intuitive.

You started with a grand vision. You know how big your business can be. Going niche feels boring. It takes you away from the epic vision.

By going niche, you’re excluding desirable clients that your product could help.

It’s difficult to be “certain” that your niche is the right niche. There’s this nagging feeling that your product probably isn’t ‘exactly right’ for this group. It’s best to keep your options open, right?

Fear of Commitment & Niche Markets

In research published in the book Predictably Irrational, author Dan Ariely found that when people are given multiple paths to potential success, they try to retain all the paths open as long as possible. They do this even if selecting a specific path would guarantee more success…

Now, if you have investors – or if you’re looking for some – you’ll feel like they always want you to think bigger and widen your market.

To invest, they’ll want to see potential revenues over $100M in a market worth more than $10Bs to have confidence that your company can reach a $1B+ valuation.

It’s hard for them to extrapolate growth from one small-ish niche to multiple market segments.

They might think your idea is too small and you’re not worth their time.

You might hear things like:

  • “You’re thinking too small”, or
  • “Your market isn’t big enough”, or
  • “It might make sense at Series A or B, but not early on…” In other words, when the opportunity has been de-risked, or
  • “We only fund ambitious entrepreneurs who want to change the world”.

But… you want to change the world…

Steer clear from outside pressures. Your goal is to build a successful business, nothing else.

A Niche Market is the Key to the Mass Market.

As Y Combinator CEO Sam Altman says, you’re better of building something that a few people love than something a lot of people like. It’s a lot easier to expand from something that a lot of people love.

The benefits of leverage and focus far outweigh the challenge of grappling with what’s often a more competitive field of players chasing a bigger opportunity.

When you move from selling to everyone to selling to a well-defined market or vertical, it feels like you’re facing a tremendous loss of potential. You wonder if your niche market is large enough to support your growth.

But here’s the thing, when you make the decision to sell to everyone because you’re too scared to sell to just a few people, you end up wasting resources, branding your company as generic, neglecting efficiency, losing out to competition, and failing.

With niche markets, you get to efficiently market, sell and create tremendous value from limited resources. Focus is key.

As MIT Entrepreneurship Centre founder Ken Morse says, de-selecting markets is as important as selecting them carefully.

Opportunities #2, #3 and #4 on your list will probably still be there when you’re ready to expand; you’ll just be in a better position to capitalize on them.

The Atlassian Story

Take Atlassian for example

Atlassian was founded in Sydney in 2002.

They started by targeting developers in software and technical teams with their project and issue tracker tool Jira. Their vision was huge… They wanted to target the Fortune 500,000… A very large market.

They felt like developers were a great beachhead market because they’re often early adopters of products, and they become invested in finding useful technology.

After developers, Atlassian targeted IT, since they were the people deciding which internal communication tools were being used in the organization.

By focusing on building a product that teams could get started using in minutes at an affordable price, they built a lot of customer love and loyalty and were able to expand into nearly every business team inside a company.

In the founders’ words, their target customer base was always evolving.

Now, some 15-16 years later, their biggest customers are businesses like Cisco, Twitter and Verizon.

With customers in more than 160 countries, sales over $1.6 billion and 2,500 employees, they did pretty good for themselves…

Niche Startups Win

It’s not because your company starts small – or smaller – that it can’t grow big.

As The Innovator’s Dilemma Author Clay Christensen says: “Disruptive technologies are typically first commercialized in emerging or insignificant markets.”

Don’t fear commitment. It’s only the beginning of your story.

More on Niche Markets & Niche Startups

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