Two Hype(r) Focused Strategies For E-commerce Startups
“You are not the target audience. You all are weird!”
I will never forget these words, spoken by my business school Marketing Professor, during the first week of my second quarter at Kellogg. She was discussing how brand managers at consumer products companies must market to their key customer segments, which typically did not include Millennials, who love being early adopters of new products — even after they’ve decided to forego two years of income for graduate school but continue spending like they still have income. So after initially feeling offended, I agreed — I and individuals like me are weird. Why would any established company or small business ever target a flighty niche market and expect to remain or become an established business? Marketing and Product Management have been grounded in securing a strong product market fit with a large and growing market.
But then there’s the internet. We can see with consumer and retail startups that companies are able to test proof of concept, thanks to the lower distribution costs associated with direct-to-consumer e-platforms. Notable examples include Warby Parker (eye wear), Casper (mattresses/bedroom accessories) and Amazon (everything). Especially considering the well-established ‘big brother’ Amazon, there has been an increase in e-commerce. However, despite all the commerce that occurs on Amazon, only 7.4% of all retail (a $400B market) is conducted online. Despite this small percentage, the use of online marketplaces (even as a reference) has increased to 69% of the US population. This saturation of online purchases has led to strong growth within the business services industry. Notable examples include TaskRabbit and Thumbtack. However, I predict that another shift will occur with companies looking to either provide products for specific markets, like a Walker & Company and Mayvenn, while other companies will generate leads for local small business owners from their hometowns on platforms like Thumbtack.
Targeting Hyper Specific Markets
A couple of months ago I read an article from LinkedIn’s Pulse that suggested that since the next wave of internet businesses can quickly connect to markets and receive near instant feedback, those companies should focus on niche markets. This got me to thinking that this principle is very true, if startups are striving to achieve the majority of their top line growth through the customer segment they’re connecting with online. It aligns with the Pareto Principle, or the 80–20 rule — the law of the vital few. This principle is what I believe is the driving force of success for venture-backed companies, Mayvenn and Walker & Company.
Mayvenn is a San Francisco based hair extension startup that enables Hair Stylists to sell products directly to their clients without the upfront costs and burdens of keeping inventory. The company has raised approximately $16M (according to Crunchbase) from notable investors such as Andreessen Horowitz and 500 Startups. The company, founded by Diishan Imira, has clearly selected a solution that directly impacts a niche market of professionals — hair stylists. Thus far the company has grown to approximately 30,000 hair stylists in 2015, which is a testament to the significant $684 million black hair-care market. However, while some might think the specialized hair extension market comprises primarily of African-American women, it simply is not true, given that women of many ethnicities use hair extensions. Further, this limited notion ignores the cultural impact that African-American women have on trends.
Walker & Company Brands is a health and beauty products company that addresses the needs of people of color. With founder Tristan Walker leading the charge, the company has garnered a lot of support from well renowned investors such as Andreessen Horowitz, Collaborative Fund, and Google Ventures. The company has utilized strong social media and traditional marketing strategies, coupled with its direct to sales distribution platform to sell its first suite of products under the “Bevel” brand. It is still early for Bevel, which is currently a small player with less than 1 percent of the U.S. online shaving market, whereas Dollar Shave Club has 50%. However, with a continued recurring subscription rate of 95% from current its base, which will increase the number of advocators, this company is poised to take more of the market as people of color realize it is tailored specifically to meet their needs.
As we look at both Mayvenn and Walker & Company brands, we see founding teams that are receiving support from the brightest investors in the business to test out concepts that have never received attention. Now the question remaining is whether the exit opportunities for these two hyper-niche companies offer the returns venture capitalists expect. I would argue that growth opportunities are ample, as long as they continue to master hyper-specific customer centric approaches. The product sales, data, and learnings from building hyper-niche companies could be very valuable to large, established consumer product companies (for acquisition purposes) or valuable to founding teams as they target other niche markets and apply their lessons and replicate their successes.
Targeting Hyper Local Markets
While one strategy for innovative and potentially profitable companies is to target a hyper-specific customer segment, the other strategy that I believe more startups should pursue is to concentrate services on hyper-local communities. One company that is testing out this approach is Thumbtack, a consumer service marketplace that helps people accomplish their personal projects by hiring experienced professionals. The company currently offers 1,000 categories of services for hire, including electricians, language tutors, DJs and personal trainers. The next step of growth for Thumbtack is to build more tools to improve and extend the experience for the contractors who market themselves through the startup’s platform. With over 200,000 professional contractors signed up on the platform, Thumbtack should work to serve both consumer and corporate clients. This could be achieved by developing partnerships with home and home improvement retailers such as Lowe’s, Home Depot, Sears and Ikea to provide outsourced moving and assembly services. Thumbtack would be the premier resource for regional/local managers of big box retailers that don’t have the resources to manage or optimize their extra services. Imagine not having to wait 3 to 5 business days for your new sofa from West Elm because the local store manager has access to 3 respectable moving professionals via the Thumbtack platform.
Not Just Hype
These two approaches, targeting hyper specific markets and targeting hyper local markets, are promising for startups that are providing high quality products to niche markets. There is the risk that the markets could be too small for traditional venture investors, but I would argue that companies such as Mayvenn and Walker & Company have growth potential, given that their key consumer group could influence much more than just the target audience. Additionally, these diverse entrepreneurs do not face the same private market bubble that others companies face.
Lastly, Thumbtack and other marketplace-based, professional service companies must attract more “main street” individuals who run small businesses to the online platform. These companies’ potential clients may currently be using Facebook and have a website but don’t see the value of joining another platform. This problem will be addressed as Thumbtack and others tap the local corporate demand, just as they have reached out to the local supply of service professionals. Developing partnerships with local store managers at West Elm, Lowe’s, and others will connect these two target audiences and take the company to the next level. In this new phase of e-commerce we will see the line between the online and offline blur even more as products become more consumer centric and service providers are connected directly to their suppliers and end consumers.
Earnest Sweat is a Startup Adviser and Business Ops professional for various accelerators. Sweat specializes in sourcing, managing and mentoring startups within the fin tech, ed tech, and real estate tech sectors. If you have any questions, comments or requests please connect with Earnest through LinkedIn, Twitter, or AngelList.
