{"id":95346,"date":"2023-03-12T12:10:00","date_gmt":"2023-03-12T16:10:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=95346"},"modified":"2023-03-14T12:48:28","modified_gmt":"2023-03-14T16:48:28","slug":"niche-targeting-strategy","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/niche-targeting-strategy\/","title":{"rendered":"Why a Niche Targeting Strategy Works Best for Tech Startups"},"content":{"rendered":"\n

What is a niche targeting strategy? Why does this strategy work best for business growth<\/a>, especially for tech startups?<\/p>\n\n\n\n

According to Andrew Chen, if there\u2019s a secret to success in the tech industry, it\u2019s a thorough understanding of the network effect<\/a>. He claims that using the network effect together with a niche targeting strategy is one of the best ways to make your startup profitable.<\/p>\n\n\n\n

Read on to learn why a niche targeting strategy helps tech startups grow, according to Chen.<\/p>\n\n\n\n\n\n\n\n

Attracting New Users: The Niche Targeting Strategy<\/h2>\n\n\n\n

According to Andrew Chen’s book The Cold Start Problem<\/em>, the more users you gain, the more valuable your product becomes and the easier it is to profit and grow. But if bigger equals better, is it even possible for a company starting from scratch to compete with established tech giants? Chen argues that the first step of creating a business capable of competing with tech giants is to create a single network that\u2019s as small as possible and still functional<\/strong>, then get a group of users to join that subnetwork all at once<\/em> to achieve network stability quickly.<\/strong> <\/em>Otherwise, that subnetwork is doomed to fizzle out and fail. <\/strong> The minimum number of users you need to have a functional subnetwork differs depending on your product. Chen refers to this minimum number of users as your subnetwork\u2019s \u201cTipping Point.\u201d In this article, we’ll explain how to establish this subnetwork based on Chen’s niche targeting strategy.<\/p>\n\n\n\n

(Shortform note: Chen uses the phrase \u201cTipping Point\u201d to describe two similar, yet distinct ideas. The first is the point at which a subnetwork has enough users to function well. The second is the point at which you have enough subnetworks accelerating the growth of your whole network to dominate the market.)<\/p>\n\n\n\n

Once you hit subnetwork stability, users will regularly use your product and may share it with others, giving you a stable or growing user base. However, Chen warns that if at any point a subnetwork doesn\u2019t have enough users to achieve stability, the few users it <\/strong>does<\/em><\/strong> have will flee the dysfunctional product and the subnetwork will collapse.<\/strong> For example, if enough people from a friend group leave a social network, there will no longer be enough content from friends for the app to be enjoyable, and the rest of the friend group will all delete it.<\/p>\n\n\n\n

(Shortform note: Arguably, the number of people in a given subnetwork isn\u2019t the only factor that determines whether it will survive. Certain kinds of people<\/em> can have a remarkable influence on whether a subnetwork becomes stable or collapses. In The Tipping Point<\/em><\/a>, Malcolm Gladwell argues that even one special person can have an outsized influence on the behavior of groups\u2014in this case, whether people start and keep using your product, allowing the subnetwork to succeed. For example, if you\u2019re a \u201cConnector,\u201d<\/a> you\u2019re gifted at making friends from many different communities, so you\u2019re likely to know more people who\u2019d like to join the subnetwork. Thus, a smaller subnetwork that includes many Connectors<\/a> may survive, while a bigger subnetwork with none may collapse.)<\/p>\n\n\n\n

Why Target a Niche Group (at First)?<\/h3>\n\n\n\n

As we\u2019ve established, to reach subnetwork stability, an entire group of interacting users must join at the same time. Chen argues that the best way to accomplish this is to use a niche targeting strategy, which involves designing your product for an extremely specific group of users<\/strong>\u2014this could be an internet community of users who share a niche hobby, a single team within a company, or even the attendees of a single event. <\/p>\n\n\n\n

By using Chen’s niche targeting strategy, you can ensure that 1) your product fits their needs, and 2) the users in your subnetwork will have several other people in the subnetwork they want to interact with.<\/strong> With these conditions met, Chen asserts that your users will form a stable subnetwork, making it far easier for you to expand your network in the future. <\/p>\n\n\n\n

Your product doesn\u2019t have to serve a niche audience forever: Eventually, once you\u2019ve attracted enough subnetworks of niche users, greater network effects will take effect, and your network as a whole will be valuable enough to attract a broader audience (as we\u2019ll see later).<\/p>\n\n\n\n

Aim for Niches Big Enough to Be Profitable<\/strong>

In Crossing the Chasm<\/em><\/a>, Geoffrey Moore agrees with Chen that the best way to build a successful startup is to begin with a niche audience and later expand to a broader mainstream market. However, Moore disagrees with Chen on a key point<\/a>: In Chen\u2019s eyes, no network is too small as long as it\u2019s stable, since you can scale up stable networks and convert those huge networks into massive profits later. In contrast, Moore advises exclusively aiming for niches that are profitable enough to power your expansion<\/a>.

Unlike Chen’s niche targeting strategy, the main reason why Moore suggests designing your product for a niche is that it\u2019s far easier to dominate a niche market<\/a> and start making money than it is to try and scrape together profit in a mainstream market. This is because markets are largely winner-take-all, with outsized profits for the market leader<\/a>, and it\u2019s easier to become the leader in a niche market.

One big reason why it\u2019s easier to become a niche market leader is that users in niche markets communicate much more closely with each other<\/a> than the members of mainstream markets. Thus, if your product is good, word will spread, and it\u2019ll quickly be adopted by a far bigger group than if you targeted more generic users.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Targeting a Niche Group Helps You Challenge Market Leaders<\/h4>\n\n\n\n

In explaining his niche targeting strategy, Chen notes that in particular, aiming for a niche user base is the primary way startups can overturn large, established networks<\/strong>, which serve a more general audience.<\/strong> Networks that try to include everyone can\u2019t cater specifically to every group that uses their product. By stepping in to create the ideal product for an underserved niche, you can attract full subnetworks away from your competitor.<\/p>\n\n\n\n

For example, if you want to compete with Kickstarter, you could start by catering your crowdfunding app to filmmakers specifically. If you can give moviemakers a fundraising experience that\u2019s significantly better than Kickstarter, that whole community will switch. Perhaps you can include a more specialized discovery system that helps passionate movie fans more easily find and fund projects they\u2019re interested in.<\/p>\n\n\n\n

(Shortform note: In The Innovator\u2019s Dilemma<\/em><\/a>, Clayton Christensen further details why it\u2019s possible to steal niches from larger competitors: Corporations choose<\/em> not to compete over niche markets. Larger businesses have far greater overhead costs than startups do, and they must earn much higher profits than startups to maintain their ambitious growth targets<\/a>. For these reasons, small niche markets aren\u2019t profitable enough for large companies to justify spending time and money addressing their unique needs<\/a>\u2014these companies have to focus on more profitable mainstream markets. Thus, they intentionally underserve niche markets, which new startups can use to their advantage.)<\/p>\n","protected":false},"excerpt":{"rendered":"

What is a niche targeting strategy? Why does this strategy work best for business growth, especially for tech startups? According to Andrew Chen, if there\u2019s a secret to success in the tech industry, it\u2019s a thorough understanding of the network effect. He claims that using the network effect together with a niche targeting strategy is one of the best ways to make your startup profitable. Read on to learn why a niche targeting strategy helps tech startups grow, according to Chen.<\/p>\n","protected":false},"author":19,"featured_media":4640,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,79,104],"tags":[935],"class_list":["post-95346","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-entrepreneurship","category-marketing","tag-the-cold-start-problem","","tg-column-two"],"yoast_head":"\nWhy a Niche Targeting Strategy Works Best for Tech Startups - Shortform Books<\/title>\n<meta name=\"description\" content=\"What is a niche targeting strategy? 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