Startup Series: Nailing the Niche Market
What does a niche market mean for a startup? It means that you find a specific set of users whose problem you are solving via your startup. Although this seems to be a counterintuitive thing, most founders seem to mess this up. Why? Because they don’t want to limit the market for their billion-dollar startup. Surprisingly, this is the wrong approach. Rather, you should focus on taking 80% of a small market than taking 1–2% of a large market. The reason is that you can always replicate the 80% model to preferably reach more than 80% market share in the big market. But if you try to do this directly, you can almost never do it. If you talk about one of the examples, Facebook was initially just focused on college students. Being in a niche market, they were able to solve their problems and penetrate this market easily. After owing nearly more than 80% of the student’s market, now they are replicating the same model all over the world. Now, it has more than 2.5 billion users, which is a huge part of a big market.
There are 2 main reasons why you should select a niche market at the start, the first one is that it helps in creating a network effect for your startup. As for a niche market, all people residing in the market share some common characteristics, common goals, and these people are usually friends with each other and they share with each other what do they like or not. Thus, if the product is good, it would definitely get spread by word of mouth. The second reason would be that you would be better able to solve the concerns of your users if they were all connected to one niche, otherwise, you would be trying to solve the problems of the whole world, and it usually never works. Another example would be Paypal which found its first big breakthrough when it started targeting eBay users. Although it was a small market initially, it provided all the momentum for it to reach where it is today. eBay users helped them improve their product and the network effect through word of mouth definitely helped them in reaching the top. If we talk about one of the Pakistani-focused startups, careem, it started its application as a carpooling service for university students. Students, being a part of a niche market quickly helped them to expand by word-of-mouth means. Moreover, they were able to improve their product using the early feedback and before it was gotten into use by a larger market. Moreover, Amazon started with just books, and now it’s called the everything store. So, the main takeaway from this would be that to win, you have to be a big fish in a small pond.
