Is dominating small markets before expanding a winning strategy for early-stage founders? We believe so.
Lower competition
Dominating a small market allows you to focus on a specific customer segment and offer a tailored solution that meets their needs. This niche approach means that you are competing with fewer companies and can position yourself as a market leader. By doing so, you can attract customers who are specifically looking for your solution and have a higher chance of closing deals.
Easier to establish brand recognition
Focusing on a small market segment means you can concentrate your marketing efforts and resources to reach a highly targeted audience. As a result, it's easier to establish brand recognition and create a strong brand presence in your niche. By becoming known as a specialist in your field, you can create a sense of authority and trust among your audience, which can translate into increased brand loyalty and word-of-mouth referrals.
Opportunity to test and refine product
When you focus on a small market, you have the opportunity to test your product or service with a highly targeted audience. This means you can gather feedback, identify areas for improvement and iterate your product to meet the needs of your customers. By taking a data-driven approach to refining your product, you can ensure that it's optimized for your target audience before expanding into larger markets.
Ability to charge premium prices
By offering a niche product or service, you can position yourself as a specialist in your field and charge premium prices. Customers are often willing to pay a premium for a product or service that's tailored to their specific needs and offers unique value. By offering a higher quality, more specialized product, you can increase your profit margins and build a more sustainable business model.
A common problem that I’ve seen founders trying to be an ‘Uber for X’ or ‘Shopify for everyone’. This doesn’t help anyone. At times, founders zero in on a customer profile and then try to create a product. But the customer profiles are so broad that it is meaningless to create something that will wow them!
Building X for everyone is a huge red flag. Even if the founders are able to build the product, how will they start selling? If you are building something for everyone, who will you approach first? What if they aren’t your ideal customer? Imagine the amount of time and resources that will be wasted.
Instead, another option is to start off as a micro solution for a very specific use case that you can’t go any more narrow with. For example:
i) We are building a chat bot
ii) We are building a customer support chat bot
iii) We are building a customer support chat bot for D2C companies
iv) We are building a customer support chat bot for D2C companies selling on Shopify
v) We are building a customer support chat bot for venture funded D2C companies selling on Shopify
vi) We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs
vii) We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales
viii) We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales having a team size of less than 20
ix) We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales having a team size of less than 20 not using any CRM
Founders can go even narrower. The narrower the better. The narrower they go, the less competition they will face. And that means their solution will be more targeted, more specific, and more value-additive. Imagine how many chatbot companies make something specific for D2C companies with $1mn in sales? Very less, because these companies will hardly have a budget to pay for these services. But there is a product need. And since these are venture-backed companies, they have the mandate to grow. Growth brings complexities and a chatbot specifically tailored for them will help solve human resource, timing, and data issues. As a founder, you can create very specific workflows for small teams that large companies will neither have the bandwidth nor the inclination to create. And that makes the pitch to these D2C customers that much easier.
a) Dominating a small market is a powerful strategy for early-stage founders
b) By focusing on a niche market, you can establish a strong brand, refine your product, and set yourself up for success in expanding your business