Riches in Niches
This post is part 11 of a series on how to launch your startup on WordPress. Last time I talked about how to get press for your startup without spinning your wheels. Today’s post is about a lesson I learned a long time ago. Why having greedy eyes is bad for your wallet, why so many have it, and the opportunity resulting from it for those who specialize. In other words, why there are riches in niches. Someone wrote a book with it as the title. I’m sure it’s good, but I never read it. Maybe I should have.
Greed Isn’t Good
One the best scenes from any movie is in 1987′s Wall Street when Michael Douglas is playing Gordon Gekko and gives a ridiculous speech to “Teldar Paper” shareholders about how greed is good. Douglas might have won an Oscar for best actor that year and he makes some valid points, however in the realm we’re talking about today, greed isn’t good. What type of greed are we talking about? The “be all things to all people” greed, the “we have to sell to all types of customers” greed.
You see, most founders and companies want to serve the entire market, capture the “whole pie” so to speak. Sounds like a good approach right? I mean, the more potential customers the more potential revenue and so on. The problem with that approach is that over time other companies will specialize in various sectors of the market and chip away those respective customers, since it’ll be almost impossible to compete with them (or at least should be in theory) on their turf. If you’re working on a product that serves ten types of customers and they’re working on a product that serves only one of those, their focus will give them a huge advantage. Not only that, consumers like when a product appears to be an excellent “fit”, even if it isn’t necessarily the best option.
For example, let’s say you own a restaurant and want to build your website on WordPress as you’ve heard great things about it, and find things like Squarespace too limiting. Are you going to go with a generic WordPress site builder, or something more specific like Happytables that only does WordPress websites for restaurants? Of course you’ll pick the latter more often than not because that’s all they do. Over time more and more verticals are sliced up by companies like this until you’re eating pizza by the slice and the whole pie approach doesn’t work well anymore.
There is one type of company where having different products of different types actually strengthens the offering of any one product, and that exception is an ecosystem. For example, if I own an iPhone and a Macbook Pro, then buying an Apple TV seems to make a lot more sense than a Roku since in theory I can use them all together much more easily. As Apple continues to add additional items down the line such as the newly announced CarPlay, my lock-in becomes much higher. The “switching costs”, as they say in economic theory, increase. But even Apple started out with just one product way back when, and slowly added additional ones as they established themselves as leaders in the various areas. Once you’ve done really well in a particular area, it’s okay to expand to other lines, and if you’re publicly traded, it’s pretty much a necessity to keep shareholders happy.
Why Tesla Started Expensive
If you’ve ever wondered why Tesla started with just one really expensive car, the Tesla Roadster, then I’ll give you a hint. By focusing on one type of customer/product, they were able to do a better job than if they launched five cars targeting five different types of customers at once. In addition, they started with an expensive model for at least three additional reasons. The obvious one is that exotic cars have better margins than econoboxes (batteries are expensive but declining in price), the somewhat obvious is that the lower volume is more manageable for a startup, but the least obvious is that it’s easier to go downmarket than up. What do I mean by that?
If Tesla starts by specializing in high-end exotics they become known as a maker whose products are prestigious and sexy. It’s relatively easy for them to go downmarket and create cheaper models off a high-end brand name. They’re following the same model we’ve seen utilized by other makers such as Land Rover and Porsche. Land Rover puts out an “affordable” $40K SUV, and people are lining up. On the flip side, it’s really hard to start with a budget product and then go upstream. Volkswagen put out a luxury car and nobody wanted it. Yeah, they lost $2.8 billion USD doing that. Oops. The idea was to change the perception of the brand, but that’s extremely hard to do. The point is, if you’re deciding on which segment of the market to focus on first, it’s typically better to start at the higher end and scale down than vice versa.
So now that we know that focus is key and starting high-end makes more sense if we hope to capture multiple areas of the market long term, what is the best approach? Find a niche within your space that isn’t currently occupied and use it to scale up quickly. Even though the potential market size of your slice might not be as large as the whole pie, you’ll find supply/demand more in your favor and once you’ve dominated your niche and reached decent scale, you can consider going into other verticals and adding more products specialized for those.
Here at Pagely we started by focusing on managed WordPress hosting, and now we’re going into more specialized subsets within, such as WooCommerce Hosting, WordPress VPS Hosting, and more. On a final note, if you’re worried your niche is too small, never forget that Mark Cuban invested in a guy who draws cats for a living. If there are riches there, then you might be surprised what you find in yours.
Full Series – Click here to see all articles in this series.