You’ve likely read many times before about the importance of understanding your potential customers and correctly identifying key drivers for converting potential users to active users (most applicable in the case of consumer products). Common wisdom is that targeting a widespread and diverse consumer base is the surest path to success, as the bigger your target market the more potential users you have. However, spreading too wide of a net can be a costly mistake for many would-be entrepreneurs. Many successful startups began with a targeted set of potential users and built a strong network effect before rolling out to broader markets.
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A classic example is Facebook (at the time known as The Facebook), which began by targeting college students at Harvard. Once Facebook hit a tipping point, nearly every student at Harvard was registered and an active user. At this point, the founders decided to roll The Facebook out to several other Ivy League schools, but limited the target audience to students at these (3 or 4) Universities. Even once Facebook was a clear hit amongst the college crowd, Facebook for years required a valid college email address to register. They began with a focused target market and aimed for nearly complete saturation before expanding their crosshairs. This resulted in several advantages. First, competitors couldn’t gain a foothold in populations Facebook had already fully penetrated. Second, Facebook was able to create a network effect (part of Eric Ries’ Lean Startup)within each niche market that they targeted, reinforcing the product and the value to its users.
Another example might be a consumer product that can be accessed via mobile phone in India. Of India’s nearly 1.3 billion citizens, roughly 380 million live in urban settings spread across ~48 cities. Nine of these have over 4 million people each and 6 of them – Delhi, Mumbai, Kolkata, Chennai, Bangalore and Pune – are expecting to grow to over 10 million each in the next 15 years. Instead of trying to target India’s population as a whole (or focus any efforts on the rural population), the startup in this example could focus on dominating one of the key urban centers (where people are much more likely to have mobile phones that can access the web) and begin rolling their solution out to other cities once a tipping point / critical mass is achieved.
Geography doesn’t have to be the basis for determining the initial target customer base. Often targeting a specific niche within a broader set and growing increasingly general with each customer iteration is a great strategy. For example, a consumer device that could be useful to anyone that exercises at least a couple of times a month could be initially targeted at hardcore marathon runners and distributed at events catering to ultra-athletes. Once it has achieved success within that small population, it will have essentially gained endorsement by those at the top and could next be targeted to casual half-marathon and full marathon runners (the next level down from ultra-marathon runners). Next could be club athletes followed by casual after-work sports organizations. Eventually the device would travel simply by word of mouth having achieved the endorsement of all serious athletes and the admiration of those that want to be more like the elites.
No matter what strategy you chose, having a specific and identifiable market is essential to your startup’s success.