niche: a specialized segment of the market for a particular kind of product or service.
Not all businesses are a fit, or require venture capital. But for fast scaling tech startups, to attract venture capital, they will need more than great tech and a strong founding team. Choosing the right market for a startup is paramount. Venture Capital investors look for ‘Big markets’, ideally multi billion Dollars in size and growing. In contras, a ‘Niche’ is ‘small’ by definition. In the beginning, all startups start small, and so should their initial market.
What’s the right niche?
Typically the right niche will be in what others consider to be a ‘boring’ vs. a hot space. A good niche can be an overlooked, underserved group of customers who are actively looking for better solutions.
In the 4 steps to the Epiphany, Steve Blank talks about customer discovery extensively and defines the the early users of your product as ‘Earlyvangelists‘ –
Earlyvangelists = Early Adopter + Internal Evangelist
Earlyvangelists are a special breed of customers willing to take a risk on your startup’s product or service. They can actually envision its potential to solve a critical and immediate problem—and they have the budget to purchase it. Unfortunately, most customers don’t fit this profile.
Perfection By Subtraction – The Minimum Feature Set, Steve Blank
What is in common for all earlyvangelists of your product:
Paul Graham, founder of YCombinator, notes that to get those first customers, you have to do things that don’t scale:
“The most common unscalable thing founders have to do at the start is to recruit users manually. Nearly all startups have to. You can’t wait for users to come to you. You have to go out and get them.”
Do things that don’t scale, Paul Graham
How small should a market be to be considered a good niche? The answer is small but not non-existent. According to Peter Thiel:
“the perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors”
Peter Thiel, Zero to One
Seth Godin believes that key to picking the right niche is in ‘obsessive specialisation’ about the people you’re serving:
“No niche is too small if it’s yours”
Seth Godin
It’s critical to emphasise the importance of those first customers. Some go as far as saying you should treat your first customer as if they’re worth $10,000,000:
They take the most effort, the most attention, the most support, and the most duct tape of any customer to come! Hundreds of hours of founder and early employee work go into building for, earning, and keeping those first customers.
Why your first customer is worth $10,000,000, Eric Jorgenson
Even the most successful tech companies started this way. Amazon started by selling books online and became the dominant solution by offering a long tale of titles that couldn’t always be found in physical stores constrained by limited shelf space. Once Amazon had a strong foothold on books, it gradually added related categories:CDs, DVDs and software. They expanded into adjacent markets until they were offering every kind of product, becoming a true general store.
“Land and expand” is a sales technique to land a client with a small deal, and then sell into the broader org to expand your footprint to more seats, additional departments or more products & services. The initial niche is just the beginning, and to scale up, you’ll have to gradually expand into other related, slightly broader markets.
Finding your beachhead
There are many benefits to finding your target market rather than taking a more general approach to the market:
- Your first customers are like design partners – they teach you, either by the way they use (or don’t use) the product, or vocally with feedback. With every new customer in your niche you increase your specialisation and inform your product roadmap.
- Brand – defining what is your initial niche helps you understand customer needs and sensitivities The constraint of serving a narrow market helps you refine your messaging and speak in the language of the customer.
- Distribution – picking a niche helps you narrow down where you may find your audience either by individual targeting or one to many by forming a partnership strategy.
This applies of course to both B2B and B2C. We’re excited about the potential of new consumer technologies at Remagine Ventures. If you’re a founder at the intersection of tech, entertainment, data and commerce, we’d love to talk to you about how you picked your niche.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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