It's common knowledge that you need to niche down when starting up.
But why? And niche down on what?
Niching down is a strategic decision. It doesn’t happen for no reason.
But the reasons for niching down aren’t truly understood.
So companies and product teams struggle to do it effectively.
On top of that, to most founders and product people niching down seems counter-intuitive. It’s easy to get a little caught up in your vision for the product.
It’s also too easy to pass off the niching problem as a marketing problem. That's a trap. It’s just as much a product decision. That’s because your niche is integral to your product market fit (PMF).
If you choose the right niche, you benefit from:
- Less competition
- A better product experience for your real users
- More relevant messaging / marketing
- Viral word-of-mouth in your niche
Now I’ve hopefully convinced you, here’s my guide.
You've probably got a grand vision for your product. This is what you might think is your starting point.
E.g. Uber started with the vision of making it easier and cheaper to get direct private transport.
Let's say Uber wanted to start in the US.
How do we know if this is a good niche to start in?
The best niche will be where users want to pull your product out of your hands and will forgive your imperfections.
To find it, you’ll need an approximately objective way to measure the impact of your product experience.
That's where the delta score comes in. I heard about it from Kunal Shah. It's essentially a quantitative measure of the value of your product to a user.
It's a great quick way to test the likely PMF of a potential market.
Back to the Uber example.
So we're doing a thought experiment on how effective the US was as a niche for them. Taxis across the US were likely pretty average - after all it's a big country. But in the early days, with very few Ubers on the road, users never would have been able to find an Uber. My bet is it would have actually been a worse experience.
What if Uber decided to niche down in New York? The taxis were actually pretty good there, so there likely wasn't too much difference.
So Uber decided to start out in San Francisco, where taxis were exceptionably terrible and expensive.
Spotify originally tried to launch in several European markets but couldn't secure enough licenses. After all for their app to work they had to have very extensive music catalogs in each country. So they scaled back to Sweden.
Starbucks initially sold coffee beans and coffee-making equipment. It was then taken over by Howard Shultz, who wanted to focus on the then niche concept of serving coffee in store.
Apple was founded with the grand vision of making computers useful and affordable for all. But they were reasonably early in the new technology's life. The everyday person had no idea how a computer could benefit them.
There you have it.
It might be possible to launch with a broad focus, but most successful companies either start with a small niche or quickly pivot into serving a small niche.
And that's how it's done. Couldn't be easier to try.