6 Startup Lessons For The Year 2007
By guest author Jawad Shuaib, the founder of Shuzak.com: The social network for geeks.
Startups have been multiplying like rabbits over the past three years. Due to the added competition, many startups are beginning to narrow their focus to a much smaller demographic. The year 2007 will mark the transition from startups aiming for the mainstream markets to specialists intensely focused on gaining smaller grounds. This is a different landscape, one that demands new rules of the game. It is the entrepreneur's job to anticipate these changes in order to align them with their startup's future.
Let us take a look at the social networks available for parents; in this category alone we have Cafe Mom, Maya's Mom, MothersClick, MommyBuzz, MTV's ParentsConnect, Famster, and Minti. The niche for parenthood seems to be taken. Yet, it can further be broken down to, say, "Grandparents", "Stay at home mothers", "Single mothers", etc. Becoming a master of any of the smaller niches has many great advantages, such as less competition, loyal readership, and better focus. All marketers exploit a basic positioning principle that states that it is better to be first than to be better. It is clearly too late to be the first social network, or bookmarking service, or video sharing startup. Consequently, the Web 2.0 era demands that startups put intense focus on their niche regardless of the smaller demographics.
Image from web2logo.com
A short history of startups on the Internet suggests that everything starts off with a single category, which is then naturally subdivided into more categories as the number of competitors rise. Division is a process that is unstoppable. To survive, startups must position themselves to be different, and the only way to do that today is to carve as narrow a niche as possible. The article that follows dictates the immutable laws all startups must follow for the sake of survival.
1. Divide and Conquer, Differentiate or Die:
There may never be a site as big as MySpace again. So while your slice of the market may not be as large, by dominating an entire category, your niche can maintain a smaller yet profitable business. As the size of a niche market declines, and the competition in it increases, the perceived benefits of competing in that niche depreciates with each new arrival. If your niche is small enough, you can maintain healthy profits while discouraging potential competitors from entering your domain. [1]
The Law of Division dictates that all categories eventually diverge. They always have and they always will. It is this divergence that creates opportunities for new startups. The best way to build a company is not by going after an existing category, but by creating a new category you can be first in. In other words, the survival of a startup requires that it diverge and then specialize. Markets favor the extremes.
2. Generally Speaking, the Smaller the Niche, the More Loyal the Users Become.
"If everyone exposed to a product likes it, the product will not succeed... The reason that a product “everyone likes” will fail is because no one “loves” it. The only thing that predicts success is passion, even if only 10% of the consumers have it." - Scott Adams, Dilbert Blog
It comes as no surprise that a niche startup that is focused on its category tends to build a more bonded community. Digg started out as a great social bookmarking site for geeks, but as it grew, so did its appetite for a larger share of the market. Consequently, Digg now has many new users but fewer die-hard fans. For many startups line extension is the easy way out. It is perceived as the inexpensive, logical way to grow. Only when it is too late does a company turn and notice that they became large at the expense of their user loyalty. Focus is the key to successfully building a community in today's ultra-competitive marketplace.
3. Focus:
Companies, especially the larger ones, have a natural tendency to expand their line of business. Google, for instance, is known for search but has its hands in just about anything "web". [2] Expanding out too fast has annihilated nearly every empire and its army in history. In a competitive environment, more is often less because with more you lose your focus.
Big companies jump in with their brands to try to take market share from the leader while startups pioneer new categories and sell out for millions. The benefit of operating a niche startup is that everyone who visits the site will be looking exactly for what they provide. Niche is all about being on the narrow point of the wedge; that advantage, though, is ruined when a startup tries to be everything to everyone. The larger the market, the more specialized a company must become. In the struggle for life, no two startups can occupy the same position. If they try to do so, one company will drive the other to extinction.
4. No Small Market is Small Enough:
The world, according to the Internet, is 1 billion strong. The web, therefore, presents a huge opportunity for markets of any size. For instance, there are many thousands of users on the Internet who own and love Persian cats. So if your niche social network is for Persian cat owners, your potential market is still in several thousands. Is that too small? For MySpace it is, but not for a niche social network. That is the great thing about niche startups; no market can ever be too small. Even better, as the size of the market depreciates, so does the threat of a larger competitor jumping in for the share.
No brand, no corporation, no startup can achieve 100 percent of a market in the face of competition. Once you accept this reality, finding a niche is greatly simplified. You don't have to face those demons that keep telling you, "Let's not give up any part of the market". The truth is that all businesses are a niche business. The only difference is that the leader's niche is bigger than the niches owned by others, but it is still a niche. Nurturing the specific needs of the niche users has become the prevalent theme for most successful startups.
5. Mind Numbingly Simple:
"What does a person want when he or she clicks a search button?" - Phil Butler at
Profy.com
"All things being equal, the simplest solution tends to be the best one." - Occam's
Razor [3]
How much time does it take for anyone to figure out about 80% of iPod's functions? Two minutes at most. How much time does it take for someone to figure out about 80% of Google's functions? 5 seconds? There are 1000's of components in the iPod, and 1000's of lines of code running behind Google. [4] Yet, you can get up and running with both these technologies in less than 3 minutes. That is the law of simplicity: Be mind numbingly simple. Extra clicks are deadly.
We tend to think of boredom on social networks as arising from a lack of stimuli. A sort of information underload. But more and more commonly, boredom is arising from excessive stimulation or information overload (often through excessive advertisements). Information, like energy, tends to degrade into entropy-into just noise and redundancy. In a world where startups are as common as ants in the jungle, it is important not to overload the user with information. Complicated user interfaces do not help anybody.
It follows that an unfocused startup will undoubtedly complicate things by forcing extra features onto a web page. Users like mindless choices so get rid of the question mark lurking over the user's head.
6. Bubble Burps:
"There is a big difference between mostly dead and all dead. Mostly dead is slightly alive." - Miracle Max, The Princess Bride
This time last year, Bloggers were reporting on many Digg, YouTube and Del.icio.us clones. Many of those startups have died since, but the low cost of hosting means they can stay online forever, despite having no users. The best way to build a startup is not by going after an existing category, but by creating a new category which it can be the first in. In other words, startups must focus on creating new markets over serving existing ones.
It is no secret that almost all startups will fail. This problem started with the bubble, and continues to plague the web today. Comparatively, not much money is flowing into startups so there isn't going to be another dot-com bubble. However, I anticipate that the failure rate for startups will remain the same, if not worse. The biggest single barrier to the development of an effective startup strategy is the strongly held belief that a company has to appeal to the entire market. In today's world, if a revenue less business model doesn't kill your startup, a more focused competitor will. [5]
Conclusion
Where is it written that a startup has to appeal to everybody? There is an almost religious belief that a wider net catches more customers, in spite of many examples to the contrary. A department store, for instance, is a place that sells everything. But when a consumer requires some office supplies, they prefer Staples over WalMart. Why? Because even though WalMart is the largest department store in the world, it cannot compete with a specialist business focused completely on what the customer needs. Generalists often manage to gain a larger share of the market at the expense of consumer loyalty. In the long term, the prospect turns to the specialist.
The point is, on the Web, any additional feature adds to our cognitive workload; distracting our attention from the task at hand. The distractions may be slight but they add up, and sometimes it doesn't take much to throw us. On the Internet, the competition is always just one click away, so if you frustrate users they'll head somewhere else. A startup that remains focused on its niche can reduce competition and, therefore, avoid the pressure to add pointless features. Expanding your focus and being strong somewhere is a better approach than expanding your focus and winding up weak everywhere.
Notes:
[1] Moreover, if your niche is small enough, bigger corporations (Google, Microsoft, Yahoo, AOL) will not consider it worth pursuing.
[2] A few examples include email, online videos, calendars, news, blogs, desktop search, photo sharing, online payments, social networking, instant messaging, WiFi, word processors, web hosting, search tool bars, spreadsheets, RSS readers, discussion groups, maps and more. In the past, I have written two articles suggesting that Google put an end to line extension: "How to Fix Google" and " Napoleonic Lessons for Google and Microsoft".
[3] Thomas Aquinas made this argument in the 13th century, writing, "If a thing can be done adequately by means of one, it is superfluous to do it by means of several; for we observe that nature does not employ two instruments where one suffices".
[4] Google became the darling of the web 2.0 Generation for simplifying the search experience.
[5] A business is not a business if it does not make money. Having little defined means of generating money is a recipe for disaster.
[6] My ideas are never my own. In fact, I don't think any idea can ever be independently developed. The thoughts presented here were inspired by the authors of these books: "Don't Make Me Think", "Trout on Strategy", "Focus", "The Origin of Brands", "The Immutable Laws of Marketing" and "Positioning".
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I interviewed Jawad about his own startup, Shuzak, over at ZDNet:
http://blogs.zdnet.com/social/?p=70
Posted by: steve | February 6, 2007 2:35 PM
Excellent stuff. Love the discusses of niches, pros and cons. I posted a blurb about that very thing this morning - good to see others talking about it too :-)
Posted by: Ron C | February 6, 2007 2:58 PM
Thought provoking and very well written Richard. I certainly very much agree with your statements. At Minti we have gone out of our way to encourage smaller and smaller interest groups to form as the site grows.
Perhaps more importantly we have spend the last 5 months turning our ranked-advice community software engine (the vibEngine) into a licensable API for any number of extreme niche offering to be made on the back of a "ranked reference base with community functions" - advice and recommendations come in many forms and the time based loss of information on forums makes our offering pretty unique.
We will be sure to let you know when our other vertical offering come out showing the steps we are taking beyond Minti... it should be only a matter of weeks now :)
All the best
Matt - Minti Co-founder (www.vibecapital.com)
Posted by: Matt | February 6, 2007 3:06 PM
Excellent post. As co-founder of a newly-launched parenting community that is based on a niche strategy, I read your analysis carefully. In large measure, I agree with your selection of "immutable laws" and core argument that segmentation (another word for niche markets) is an exploitable path to success given the current state and landscape of Web 2.0 start-ups. I do question your assertion that there will never be another site as large as MySpace and wished that you had talked about the critical nature of marketing in building out a viable community, but those are minor quibbles with a well-reasoned article.
Thanks for the thought provoking perspective.
Regards,
Tim Ludwig
Co-Founder
www.parentography.com
Tools, advice and ideas about family-friendly excursions
Posted by: Tim Ludwig | February 6, 2007 3:38 PM
Thank for this great posting. It was very interesting. One of the great things about this country is that brilliant ideas can come from anywhere at any time. One failure might be a springboard for something spectacular.
I have many friends in the venture capital business and they are constantly watching for the next big thing.
This is a great blog. Keep up the good work!
Posted by: Dan F. | February 6, 2007 4:06 PM
Thank you all for the wonderful feedback. My preposition that there may never be a site as big as MySpace again is actually from another article I wrote: Anatomy of a successful social network. The market has a natural tendency to segement. This trend is driven by both, the consumers and the businesses. Considering that point in mind, I believe that the next big social network/startup will be much smaller than MySpace.
My own niche social network for geeks could further be segemented into "technology", "science", "mathematics", etc. We are in the era of super-niches; the market we appeal to will get smaller as the competition among startups increase.
- Jawad Shuaib
founder, Shuzak.com
Posted by: Jawad Shuaib | February 6, 2007 5:15 PM
There are many good points in your article. I would like to supplement them with some information.
For an all-volunteer site, dedicated to small businesses who wish to succeed in federal government contracting, please see the below site:
http://www.smalltofeds.blogspot.com/
The federal government will contract in excess of $80B to small businesses in the next fiscal year.
There are over 50 agencies or "Departments" in the federal government. Each of these agencies has a statutory obligation to contract from small business for over 20% of everything it buys.
Contracting officers must file reports annually demonstrating they have fulfilled this requirement. Not fulfilling the requirement can put agency annual funding in jeopardy. Small business has a motivated customer in federal government contracting officers and buyers.
Large business, under federal procurement law, must prepare and submit annual "Small Business Contracting Plans" for approval by the local Defense Contract Management Area Office (DCMAO) nearest their headquarters. These plans must include auditable statistics regarding the previous 12 month period in terms of contracting to small businesses and the goals forecast for the next year.
The federal government can legally terminate a contract in a large business for not meeting small business contracting goals. Approved small business plans must accompany large business contract proposals submitted to federal government agencies. Small businesses have motivated customers in large business subcontract managers, administrators and buyers.
There are set-aside opportunities available for small entities,veterans, disabled veterans, women and minorities. All it takes is navigating the system, persistance, asking questions, registering, marketing, teaming and working hard.
Small Business America is good at that.
Posted by: Ken Larson | February 6, 2007 5:17 PM
You have raised a few excellent points. I'm in the process of building a new startup, and my fear is always that one of the big companies will see what I am doing, emulate it, and promote it quicker and to a larger base than I am capable of. And I die little deaths every time I see a competitor offer a similar feature to what I am considering. What I reassure myself with is that I am targetting a niche market that will appreciate the dedicated focus to form and function that I am aiming for. Its good to read you advocate this strategy!
Posted by: Leith @ Birth of a Startup | February 6, 2007 5:19 PM
Thank you Leith. "What if Google develops a rival product?" is a valid concern that, I believe, every startup owner eventually faces. We all remember what happened to Kiko.
What we need to realize, though, is that Google is not in the business of online calendars or rss readers. A specialized startup that is intensely focused on its niche will overcome the sort of barriers posed by a larger competitor. It is Google that should restrain from entering another startup's domain, not the other way around :)
- Jawad Shuaib
founder, Shuzak.com
Posted by: Jawad Shuaib | February 6, 2007 6:01 PM
Your article raises some good points for new startups, focus certainly is a must. I'm not sure however that I entirely agree with the "niche or nothing" overall stance.
Size does matter, carving into a very narrow niche of just a few thousand English speaking Persian cat lowers will not necessarily guarantee that you will be able to gain a large share of that niche market. Further more, as many internet entrepreneurs will painfully tell you, making money – even small money – from a webservice requires user volume.
Much more critical however is the fact that a large user base is attractive to new users – that is, as a user of a social network I would prefer the competitor with the biggest user base. Rather than seeking out narrow (or call it extremely focused) niche sites I would sign up with the BigCo that offer a wide user base, and where besides an internal niche community for Persian cats I can also find small niche groups focussed on 10 other things I care about.
If google offered a Seccond-best-in-breed solution to all the webservices I’ve signed up with I would personally be glad to trade a superior solution with a single login and easy adaptation.
In that sense a small startup with a carefully carved niche may still find them selves competing with MySpace simply because they are still that deadly one-extra-click away from the site the user is already on.
Posted by: Emil | February 6, 2007 6:16 PM
excellent post, very informative.
i agree completely, i am starting many niche sites, thats the way to go.
Posted by: Matthew Berman | February 6, 2007 7:20 PM
Very well thought out commentary. The general trend of things always seems to go this way. Someone carves out a new niche, ala MySpace, and blows up huge. What is important though is who can divert from that first big slice and still carve out a slice big enough for themselves.
Sometimes, you just have to move on to the next pizza pie and start new :)
Posted by: Chris Stark | February 6, 2007 7:58 PM
I fundamentally disagree with one of the top sentences:
"The year 2007 will mark the transition from startups aiming for the mainstream markets to specialists intensely focused on gaining smaller grounds."
I think that breaking your audience down into tinier and tinier niches is what decimates startups and forces them into obscurity. How many startups out there are developed solely for the geeky crowd, the San Francisco crowd, the Google Mashup crowd, or the social networking crowd? How many startups take a small part of what another company is already doing and add 1 new thing to it, then rebrand it as a new company? Think of all the companies right now that are "Flickr but for X", "YouTube but for Y", or "MySpace but for Z".
If entrepreneurs actually took a look around and noticed their surroundings, they'd see that the only large exits recently have been from companies that *did not* concentrate on a tiny niche but rather produced valuable applications that anybody could use and anybody could like. Flickr was photo sharing for anyone who can use a computer, YouTube is video sharing and browsing on any topic under the sun, MySpace is a no-restrictions social network used by people 5 decades apart.
When working with a smaller niche market, your target audience is smaller therefore your problem subset is smaller. The smaller your problem the easier it is to solve, and the easier it is to solve then the lower the entrance barrier and the more companies out there that will copy you.
Entrepreneurs should not waste their time working on "the small problems" since they're less fun to solve and inherently bring in a smaller subset of the total population since they carved it up into niches from the start. What's wrong with coming up with an original idea and doing it huge, doing it for the entire planet, regardless of if you're a teacher, designer, geek, or anything else? Why not tackle the huge and complex problems, aren't those infinitely more satisfying? Why go after the small fish when you could be busy with your app that exists for $500 million instead of $5 million?
"Make no small plans for they
have no power to stir the soul."
Posted by: Mike Rundle | February 6, 2007 8:21 PM
Very well written.
I personally liked you mentioning the statement:-
"If everyone exposed to a product likes it, the product will not succeed... The reason that a product ‚Äúeveryone likes‚Ä? will fail is because no one ‚Äúloves‚Ä? it. The only thing that predicts success is passion, even if only 10% of the consumers have it."
I feel today more people focus on making the product according to the user (or say market) likes. Very rarely they succeded in making products truly passionate for users.
Startup Entrepreneurs should take care of this.
Posted by: Maneesh Prabhalayam | February 6, 2007 9:29 PM
This is excellent. I think so much about where we were and where we're going in the online world and it baffles me. I mean, one day we're going to have a niche social site dedicated to the "kids of parents who own ferrets". As off the wall as something like this sounds, with what you stated, something like this could develop a very loyal user base!
My two favorite lines:
"Becoming a master of any of the smaller niches has many great advantages, such as less competition, loyal readership, and better focus."
and
"Consequently, the Web 2.0 era demands that startups put intense focus on their niche regardless of the smaller demographics."
Very well said. Couldn't have said it better if I paid someone to say it for me! I not only wonder but anxiously await the next big thing!
Posted by: Oliver Tani | February 6, 2007 10:11 PM
Hi Richard
Enjoyed your post.
Thanks for mentioning Minti.
As Matt said above - we have a few other Niche plays coming soon - stay tuned ;)
-- Clay
Posted by: Clay Cook | February 6, 2007 10:12 PM
Is small really the new big??
I wanted to touch on Mike's comment above. I actually agree with the Jawad's statement "The year 2007 will mark the transition from startups aiming for the mainstream markets to specialists intensely focused on gaining smaller grounds." Mainly, because this trend has been rolling full steam ahead for a couple of years now. Start-ups that focus on the long tail of things are hot right now but that doesn't mean that there aren't ones that are geared for a mainstream audience. We see social networks for say niches like geeks or car lovers and at the same time we see generic social networks that are going head on with Myspace (Virb and Tagworld would be good examples of this if I'm not mistaken). At the end of the day it comes down to what problem you want to solve and why.
Mybloglog is a good example of a service that saw a niche and provided a useful service to them. You can also look to Fannation who created a social network for sports lovers. Both these companies were recently bought out, for $10 and 25 million respectively. It's true that generic sites do make most of the big exists but how many MyFlickTube's can we have? I am trying to make a case for both the small guys as well as the big guys. Real entrepreneurs solve problems regardless of the size. There will be plenty of opportunities to create gigantic start-ups as new (online/offline) technologies appear, so you should never forget about the big picture. At the same time, looking at the current state of the web...there are clearly a lot of opportunities for niche and the super-niche.
The other point I wanted to touch on was what Emil said regarding the fact that a large userbase is more attractive to new users. I think this might have been true a few years ago but it is quickly changing. I think that closed-social networks or invite-only communities is something that we will be hearing more from (hopefully I will get some time to write about this). I am making a case for smaller, more focused communities because it is more in-tune with how we socialize in the real world. We are social beings and we tend to socialize with people that we have things in common with. The other reason I would like to share is personal. I am one of the founders of Sneakerplay, a social network for sneaker enthusiasts and its invite only! Talk about super-niche. Keeping our community exclusive has actually made it more attractive. It's helped to create a loyal and closed knit community. And hopefully it will change some minds about what a social network really is. Critical mass is not a mandatory key to success, there are countless examples. Quality over quantity!!
Posted by: RJ | February 6, 2007 10:56 PM
Many startups will end up with nothing more than crying and tears.
Posted by: Glendale Winnipeg | February 6, 2007 11:38 PM
Great article Jawad Shuaib. Like many of the commentators on this article, I'm an entrepreneur myself and I couldn't help but question your statement that, "The year 2007 will mark the transition from startups aiming for the mainstream markets to specialists intensely focused on gaining smaller grounds."
Initially I agreed with Mike Rundle's opinion, "What's wrong with coming up with an original idea and doing it huge..." I think that the answer to his question is that there is nothing wrong with that. However, although it is possible that entrepreneurs will come up with original ideas that are huge in scope, Jawad may be correct in his assertion that we'll see startups aiming for niche markets and I have a theory as to why this will occur.
I believe the trend toward niche markets will continue because the online advertising industry is growing and there is more money out there for people to grab up. Specifically I'm talking about online advertising revenue, which grew by 30% between 2004 and 2005 according to iab.net. Without the growth of the industry, there would be no room for these niche players.
As an example, take a look at the video rental industry which is being pressured by disruptive innovations including video-on-demand and Tivo. Myspace's and Google's video rental counterparts could be companies like Blockbuster and Movie Gallery. In an industry that is facing declining revenues I'd be hard-pressed to find any startups hoping to carve a niche in this industry like a video rental startup that focuses on renting westerns to western-lovers in Miami, Florida. There just isn't enough revenue and profit to be had.
The point I'm trying to make is that these niche startups will pop up because there is more and more cash to be had through online advertising, BUT, when everyone is talking about making money more or less the same way... I get a funny feeling in my stomach. What happens when the industry's revenue growth slows... or dare I say it... reverses? We'll probably see a lot of these niche players fizzle out. Entrepreneurs may indeed focus on niche markets in 2007, but I sure hope for their sake that they think about different revenue streams. Otherwise Glendale Winnipeg will be right, "Many startups will end up with nothing more than crying and tears."
Thanks again for the great article.
Nick Cho
finfo.com
Posted by: Nick Cho | February 7, 2007 12:59 AM
I'll add to the post that it does not help if you are in a niche where only you can differentiate your product from others. If you are a better Google web search, but nobody sees the difference because "it's just another search engine", then you don't exist.
As for the internet population, I can only wonder the little that is done for the major part of the internet population who still connects with dialup. For them, online video just does not exist. Even Ajax-based websites that move a ton of stuff through the wire.
Posted by: Stephane Rodriguez | February 7, 2007 4:30 AM
Your rather dogmatic article is correct- except when it's wrong. The world's most successful magazine is not targeted at any niche- it is Reader's Digest, the archetypical 'general interest' magazine. It outsells more focused news, celebrity, science, political or sports magazines.
The most successful movies ever- Titanic, Pirates of the Carribean, Lord of the Rings, Star Wars, etc- are not niche products, but succeed precisely because they appeal to virtually everybody in every conceivable segment. They outsell action flicks, chick flicks, horror movies, and other products targeted at specific niches.
Wal-Mart clobbered focused retailers like Toys R Us, devouring their market share; and evidently, Staples has done nothing to restrain the Wal-Mart juggernaut. Coke is the world's best-selling soft drink precisely because it targets everybody.
On the web, the 3 most-visited sites on the planet (Yahoo, Google and MSN) are most certainly not targeted at any niches- they appeal to virtually everybody.
I could go on, of course. You're partly correct in your analysis of the benefits of positioning within underserved niches. It is a strategy more likely to succeed than the multisegment approach. But the fundamental law of business is that risk correlates with reward. A mass-market approach is more likely to fail than a niche strategy- which is precisely why when it does succeed, it is more profitable.
Nice try, but you need to expand the horizon of your thinking beyond narrow dogma.
Posted by: Motmaitre | February 7, 2007 5:00 AM
Have to agree with Motmaitre a bit - dont get me wrong great article but, like the "Long Tail" - you forget there is a mass market out there that makes most of the money...
Posted by: rav | February 7, 2007 6:36 AM
Nice article. I am working on a startup that involves health care industry. The issue is that the typical startup would not work. There are more than five thousand hospitals, close to a million doctors and there are close to a billion health care visits and it is a two trillion dollar industry. How do you tackle that? Yes, I know you may have to start somewhere, probably small and I think I know exactly where that is and how and when. But, I don't want to go for typical financing, because I want "Symbiotic" relationship with someone. The two good venues would be Finance Industry, but greater would be an alliance with the I.T. sector. A lot of them like Google, Microsoft, Intel and some other groups are working on it. That would save a lot of time and money and avoid duplication of efforts. I do know that it has to be a profitable and self-sustaining venture, but the trick is that it should not increase the cost also. How do I start? How do I get in touch with some important people, other than using the generic email.
The basis of my plan is symbiotic relationship as I said above, but whatever we do, we have to have doctors on board. That is where my plan comes. I am a doctor and also an MBA.
Posted by: Aj Bangash | February 7, 2007 6:52 AM
"Mybloglog is a good example of a service that saw a niche and provided a useful service to them. You can also look to Fannation who created a social network for sports lovers. Both these companies were recently bought out, for $10 and 25 million respectively."
Very true, but look at the "small niches" that MBL and Fannation cover -- MBL is a community for bloggers and blog readers (huge) and Fannation is a community for sports enthusiasts (even larger) -- so although these two companies cater to a particular type of person, that population subset is still a lot larger than catering to persian cat lovers as suggested in the original entry.
If you aim for 1 billion people and only attract 1/1000th of them to your service, you're still doing pretty well. The problem is when you initially aim for 1,000,000 people because now your margin of error is magnified. From the entry:
"For instance, there are many thousands of users on the Internet who own and love Persian cats. So if your niche social network is for Persian cat owners, your potential market is still in several thousands. Is that too small? "
The smaller your niche, the fewer people worldwide who are part of that target audience, therefore the niche startup has to do *more work* to sift through the population and hit that tiny slice. This article advocates the marginalization of your target market but doesn't take into account the various blockades in front of customer adoption, especially when your customer base is only 1 million worldwide instead of 1 billion.
It's like throwing pudding at a wall the size of a house, and then throwing pudding at a wall the size of a 2x4' beam. No matter how tasty and rich that pudding is, you're more likely to hit the house than a thin pillar of wood.
Posted by: Mike Rundle | February 7, 2007 7:58 AM
Nice article!
While sites like MySpace will continue to welcome all-comers to an increasing unwieldy world of possible relationships, enduring social networks are more likely to evolve at the ‚Äúneighborhood‚Ä? level where, for example, you can choose those topics and people based on your specific needs. This will lead to niche strategies.
We‚Äôve found this to be true at Zolved.com, where the urgent need for consumers to find a ‚Äúfriend in technical support‚Ä? to solve a problem with their iPod or other digital devil is quickly growing into an organic network of technophiles gladly helping technophobes ‚Äî all built upon a self-help content framework we‚Äôve created. Using free remote control technology, we‚Äôve even empowered our community of visitors to literally connect to another user‚Äôs PC to resolve a technical problem.
The best kind of niche social networking has a practical side for the Zolved.com community.
Paraphrasing McLuhan, ‚ÄúThe medium is the messaging.‚Ä? Pick your niche. Pick your new friends. Communicate. Collaborate. Know and grow.
Ratan Tipirneni
Founder and CEO
Zolved.com
Posted by: Ratan Tipirneni | February 7, 2007 9:01 AM
Jawad....Interesting article.
However, I would have to disagree with you and agree with Mike Rundle. If you play in a very specialized niche, your overall target market is going to be too small to begin with. Although you may get a significant portion of the market initially, the narrow focus would result in low barriers to entry for other competitors. You may have loyal users initially, but as soon as someone else comes along with that additional feature that increases the value proposition, you could easily lose those users or continuously play "catchup".
Additionally, niche players are not good acquisition targets for the big guys. So, unless you have a strong enough biz model that can be sustainable, go for the bigger enchilada.
At ZCubes, our eventual target is the entire web community simply because we feel that the inherent technology behind the product provides some use for everyone.
Posted by: Parag Mathur | February 7, 2007 10:38 AM
I can't wait for The Year of Show Me the Money.
When all these silly 1-off Web 2.0 companies get decimated because they are not profitable and never had a business plan to begin with.
I rock my sites out in my spare-time and bank $5k+ per month in revenue, 80%+ profit margins.
I'd rather be making $10k per month when the dust settles than have a pretty pastel logo + a few thousand users and no exit strategy other than to be bought by an Even Greater Fool.
Just my $.02, from someone who's lived through a Web 1.0 Bubble. (Yes, it will happen this time around too, folks.)
Posted by: fez | February 7, 2007 12:42 PM
Hi Jawad,
I liked your article on [cut and paste title here].
I don't have a company that I am shamelessly trying to promote..ahem..network, but if I did, this would apparently be the place. www.gootube.com. I would try to seamlessly take your article and make an off-hand reference of my startup and throw in the url for good measure. www.gootube.com Here's where I throw in some MBA words like disintermediation and scalable connectivity, mixed with sports terminology like tackling the competition. www.gootube.com At GooTube, we try to connect our stakeholders with large quanities of goo.
Joe President
CEO and Co-founder since time unknown
Gootube, Inc.
www.gootube.com
Collaborate and create with goo.
P.S. If you'd like to find out how my company is doing, go to www.gootube.com.
Posted by: Joe | February 7, 2007 1:07 PM
Enjoyed the comments, what a great phrase "That is the law of simplicity: Be mind numbingly simple."
People do not realize that it is the secreat to Google's success just look at their home page and Yahoo!s. It takes an act of Congress and the blessing the Google Gods to add anything to that page.
In this age of information overload, Yahoo looks like the old KMart ads in newspapers. Leave no white space.
I have booked marked your blog.
Mark
www.simplyusedphones.com
Posted by: Mark Young | February 8, 2007 5:29 AM
While I agree with you on all the points you make, it is rather hard to attract money for your venture, if you identify your market as very small. In fact, a lot of times, saying I would capture a 2% of market share of a $1 billion market in first two years, makes people think you are not aggressive enough.
Posted by: Lokesh Kumar | February 8, 2007 7:06 AM
This article is crazy. The author of 'Post 21' highlights some very good points. I can't believe how crazy this post is.
Posted by: Wow, this article is crazy | February 8, 2007 10:27 AM
An excellent debate - I am normally one of the 90% who sit back and watch but I am compelled to post - Congratulations!
As I try to draw my own conclusion I look to the publishing industry as a benchmark. Niche titles have always been popular and successful - but I would guess that over 90% are owned by the 1 player.
If you play niche - make sure you own plenty of them. To do web 2.0 well is not cheap - so you are going to need economies of scale working for you.
Posted by: Jackie Shervington | February 11, 2007 7:54 PM
super!!!
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Posted by: chriscarpenter | March 4, 2007 9:19 PM