Today I am posting a blog from a well respected tech investor in Silicon Valley – Dave McClure.
“Actually, this is quite far from the truth – in fact, you can be incredibly mediocre and still be quite successful. (sounds inspirational, i know, but stick with me for a minute.)
The secret is to find your Niche – that is, the initial customer segmentation / product differentiation combo that enables you to 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 in a few cases, those with too much good fortune with big wins) have no understanding of this. They commonly and foolishly advise founders: a) “You’re thinking way too small”, or b) “Your market isn’t big enough for us”, or (sorry Vinod i know you mean well but i don’t agree) c) “We only fund Ambitious Entrepreneurs who want to Change The World”.
While this perspective isn’t completely irrational coming from large-fund VCs (>$250M+) who need big exits & returns to satisfy their LP investors, it’s incredibly unhelpful in the short-term for entrepreneurs just getting started, who may be a year or three from understanding their mature market opportunity.
In fact it’s a bit counter-intuitive, but the crappier you are and can still find minimum viable success, the quicker and better you’ll be at identifying initial customer-problem framework opportunities that will create possibility for your still tiny little startup to grow up and succeed.
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 the huge and largely undifferentiated market for women, perhaps with the only focus being 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 make $50K-125K US GDP or equivalent … who work for a living … who feel like they don’t have enough time in the day.
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 probably costs less to acquire customers ready to purchase), and thus a more differentiated offering. In fact, your product could be far inferior, far more expensive, and far more profitable than a big competitor’s product that was designed for a much bigger, undifferentiated audience, but with crappy untargeted marketing. Also likely, because they’re a big company, they’ll move and innovate much slower than you, so you’ll always be ahead of them and they’ll never ever catch you.
Ultimately, if you do want to become a bigger company, you will have to grow your market, change product offerings, and compete in multiple customer demographics 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 your goal, then focusing on a big, world-changing vision is EXACTLY the wrong thing to do. You need to narrow your field, find a very targeted customer, and work on a simple, crappy, focused solution for your customer.
so just Niche to Win, baby.”
The real article can be found here: http://500hats.com/niche-to-win