Niche Down

It is important for the teams of early-stage companies to keep a razor-sharp focus on the customers and market they are hoping to address in the context of the product or service that they are developing. Validating the opportunity with potential customers as quickly as possible ensures that the team’s efforts and limited funds are being applied effectively. If this is not the case, the team can adapt or pivot their idea, or recognize the idea as a fast failure and move on. Validation is achieved by developing, demonstrating and discussing successive prototypes, and the so-called Minimally Viable Product (MVP) to an increasingly larger number of the target customers.

This urgency to validate opportunities at an early stage has a key operational implication: The initial plans should “niche down.” What is meant by this term is that efforts should be initially confined to a single, focused and limited offering, addressing a small niche market within an easily addressable and serviceable territory. In effect, this focus should be on the “minimal” of the minimally viable product (MVP). Like a patent application, the focus should be on demonstrating the novel, inventive step and little else. In doing so, the team can expedite an initial proof of concept (POC) i.e. validate the feasibility and desirability on a small scale and/or small, focused market and then expand the offering from there.[1] Developing and launching a novel product or service is an experiment as one cannot determine the customer response in advance.
 
Despite such a strong initial focus on the core offering, innovation and differentiator, success will still require that the longer-term market potential be huge. Often the term used is that the product or service must be scalable.[2]  Scalability means that with additional resources (cash, staffing, partnerships, and manufacturing capability) and proper execution (marketing, sales, distribution, integration and service) significant growth and revenues can be generated. This combination of a proof of concept (POC) with a plan to scale is what will attract early-stage investors. For them, risk reduction and market potential are far more important than a feature-packed offering. Additional features and benefits can be added as the offering evolves.
 
On the other hand, it is easy for teams to overextend or become distracted by all the possibilities while building out their initial business plans. Efforts to show strong future revenues and profits as well as a significant competitive position help drive this tendency. Common examples of overextension are plans to become: a one-stop shop, the low-cost producer, a global presence or all-things-to-all-people. These things may indeed come to pass, think about the wide offerings of the FAANG companies (Facebook, Amazon, Apple, Netflix and Google) and Microsoft, but even these businesses started much smaller and focused: Harvard student connector, Online book sales, Home built personal computers, DVD rentals by mail, Improved search engine, and Operating system for early personal computers respectively. 

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