Find Your Niche

What's the best way to find a market for your startup? It could be more straightforward than you'd think.

If you follow your intuition you might find yourself emulating eight figure tech companies. What works for them will work for anybody, right?

Emulation can indeed work if you have luck on your side. But one day the luck will run out and you'll have to actually solve a problem for yourself. Then it's game over. There's a more satisfying (and successful) way to start a startup that I'll talk about in this post.

What's a niche?

A niche is a slice of a market category. Niche customers are usually outliers that have different needs from the norm. The niche is the exception and not the rule, this makes them small relitive to the entire market category.

A niche is a relatively small segment of the population.

Every human belongs to a variety of niches by virtue of us having different interests and needs. Some examples of niches:

  • Podcast listeners.
  • People that ride the bus to work.
  • Cat owners.
  • People that live in New York City.
  • Web developers.
  • Photographers.

Big businesses can't afford to focus on niches without going bankrupt. On the other hand, small businesses like startups and solo makers can focus on niches with great success.

What's special about startups and niches?

Let's go on a little adventure. Imagine it's the year 2009 and you're the CEO of the biggest hotel chain in the world, Hilton.

You hear about a young company called AirBnb, started by two poor guys living in a loft. They're competing for a culturally curious niche of your customers by allowing people to rent out their homes to them as an alternative to staying in a hotel. You laugh at their naiveté then promptly forget about them.

Now its the year 2018. You're still the CEO of Hilton. AirBnb is worth $30 billion, while Hilton Hotels is worth $7.8 billion. It's too late to compete now, and you can't buy them out. You kick yourself.

Here's the real kicker: Even if you tried to beat them in 2009, AirBnb would have had a natural advantage as a function of their size. Many of a startup's strengths come from its compact footprint.

A small company can attach itself to a niche of people and tailor whatever it produces to their needs. Products and services can be improved by bouncing ideas off customers like sonar, each bounce represents an improvement to the project. This is how to make things that excite people.

Competition is for losers

Look familiar?

Open almost any business or marketing book and you'll find some advice about the toxic nature of needless competition.

We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.

Peter Thiel, Zero to One

It can be masochistic – even suicidal – to voluntarily compete for scraps of the market. It's better to invent a new category to operate in. This doesn't mean you can't compete for the same customers as other companies. It means its better to solve the problem in a way that ignores other players. The modern example of this is Tesla vs the car industry.

If you can't be first in a category, set up a new category you can be first in.

Al Ries and Jack Trout, The 22 Immutable Laws of Marketing

This doesn't mean you should be ideologically opposed to competition either. Competition in business is inevitable. If you're on to a good thing and nobody is competing with you yet, they will be soon. Just don't be the one to initiate it without necessity.

If you make anything good, you're going to have competitors, so you may as well face that. You can only avoid competition by avoiding good ideas.

Paul Graham, Startup Mistakes

A niche can make you $1 million

I'm proof that if you just pick a little niche and you provide enough value, that even in my little, tiny niche in the world, I can still make millions of dollars. Almost every niche, there's plenty of money for one person if you can make a difference as one person.

Mike Perham on Indie Hackers Podcast #16

It's a common yet misguided belief that small companies = small revenue. This can be disproved with some simple maths. It's surprisingly achievable to make more than a million dollars with a small but committed customer base. Perhaps the fact it's surprising is also why we tend to assume small markets aren't worth pursuing.

How to break $1 million without many customers

How to reach niche customers

Before the internet it would have been substantially harder to build startups how I'm describing in this post. Apart from word of mouth and advertising, there weren't enough reliable channels to reach a niche of customers.

The tools available for targeting niches today are insane. It's scary how insane sometimes. If you're able to read this, you're also able to reach about half the world from the comfort of your living room without having to spend a penny (or move at all).

It's easy. Go to Reddit or Facebook and find where the audience for your product or service hangs out. Introduce yourself, tell them about what you're making for them. Get feedback, then repeat. There's no need for advertising when you can already reach your customers and have open dialogue with them. This is why the companies that do this well have the most loyal customers.

Narrow then broad

A couple of years ago I had a chat with Kieran O'Neill, CEO of thread.com. He laid out Thread's strategy for breaking into the clothing industry.

While discussing Thread's future, Kieran stood up and drew a chart on a whiteboard with a narrow bar in the centre. "This is Thread now" he said. "We selected a slice of the market – men's clothing – and we're gradually growing into it".

Then he drew a second, wider bar over the top of the narrow bar. "Once we're doing well in men's clothing we can broaden further into areas of the market. Its better to start narrow and broaden out later."

It doesn't matter if you plan to stay small forever or grow into a multi-national conglomerate. The most effective way to find inertia in the early days might be to tap into a niche. Growth can happen later.