Choosing the right entry-market

Criteria for a good niche to start

Why is limiting yourself to one segment so crucial for a startup? It’s because your energy is limited. And only concentrating it enough — the life of startups is hard anyway — allows you to reach the critical mass.

So the aim is to find the most attractive submarket with the same needs (to reduce development costs) and the same sales process (to reduce marketing costs).

Criteria for a good entry-niche

  • Fast execution
    - MVP is achievable quickly
    - fast access to customers
    - well-funded customers with ability to decide quickly
    - word of mouth potential within the niche
  • Chance to dominate the niche
    - compelling value proposition (2x-3x better than current alternatives)
  • Size: around 20M-100M
  • Leverage for expansion
  • Personal alignment

Identifying potential segments

Before looking closer into specific segments it is a good idea to get a good overview. Often there is a lot of market information available already. Have a look at some of these useful sources. What are the relevant dimensions of the product for the customers? What are your relative strengths in comparison to competition? Once you got that clear it is way easier to guess possible targets.

For each possible segments get at least the following information:

Segment 1:
Users:
i.e. high-school mathematics teachers in Switzerland with an affinity to technology
Needs:
i.e. learning material for their class
Alternatives:
i.e. books for $20/year/student
Your offering (MVP, Pricing):
i.e. online collection for $10/year/student
Marketing channel:
i.e. teacher associations
Decision making: annual decision by each teacher
Market size: 600 teachers x 100 students x $10 = $600k/year
Development costs:
$300k
Customer acquisition costs = $10k

In this case the market is probably a too small and timing might be an issue!

Once you have different possible segments you try to narrow it down (against the criteria) and start checking your assumptions (through market research or an MVP/prototype).

Iterating and testing should lead you to your final choice in the end.