Worry About Scaling After You Find Your Niche

It’s very hard to forecast the rate of adoption of a genuinely new offering in an emerging market, one that is discontinuous with current practice. A focus on scaling is premature until you have proof of value and have found your niche.

Worry About Scaling After You Find Your Niche

Entrepreneurs can mistakenly focus on scaling early in a new market, worrying that a particular activity or strategy “won’t scale.” But your first objective is find proof of value and at least a small set of customers who constitute a market niche. This allows you to offer case studies and success stories that will influence prospects.

Scott Cook: “How deep is the customer problem that’s unserved?”

“We tell our disruptive teams to not do volume forecasts. Do not do a spreadsheet with volume forecasts on it, because it is unforecastable.  You cannot really know. So why waste time doing bogus numbers that are unknowable.  The finance department may ask for them, so spend five minutes, do something quickly, but the leadership should not focus on those numbers. They are wrong, you just don’t know in what direction. Instead we have teams focus on how deep is the customer problem that’s unserved and how good is our solution at solving it. If  those two are strong, then we have a reasonable shot at a good business. If either of those is weak, then no matter what the spreadsheet says, no matter what the volume forecast says, there is not a business there.”

Scott Cook in a 2007 interview with Innosight (starts at the 2:30 mark but all six minutes are worth watching)

Delta: What is the value associated with making the change?

Peter Cohan‘s “Situation Slide” asks six questions to help a sales team prepare for a demo:

1. Job Title & Industry: Name and role of each decision maker attending demo
2. CBI (Critical Business Issue): What is the major problem he/she has?
3. Reasons: Why is it a problem or what is the problem due to?
4. Specific Capabilities: What capabilities are needed to address the problem?
5. Delta: What is the value associated with making the change?
6. Critical Date or Event: When does the change need to take place (and why)?

I have bolded CBI and Delta because these correspond to Scott Cook’s “how deep is the customer problem that’s unserved” and “how good is our solution at solving it.” These are the key questions for determining whether or not you have a niche.  Actually they are key questions to answer to secure an early customer, but when the same problems and same delta or impact recurs across customers who will reference each other’s buy decisions you have found your niche.

It’s at that point you can worry about scale. But especially for bootstrappers, a solution that doesn’t scale can still generate not only cash flow but valuable learning about real problems so that you can meet a deep customer need in a distinctively useful way. As Cook points out in the video, you can worry too much about building a $100 million or a billion dollar business when making sure you are having an impact on a problem a customer cares about can secure you  a $1M to 10M business that can lay the groundwork for a larger business.

This why we put the “finding your niche stage” after “early customers” but before “scaling up” in our startup stages model.

Related Blog Posts

• Crafting a Value Proposition
• Tristan Kromer on Testing Customer and Value Hypotheses
• Be Wary of Attacking a Walled City
• Challenges in Analyzing Market Structure and Competitive Landscape

Photo Credit: “Old Entrance Door in Forest Wine Cellar” (c) Olesia Bilkei; licensed from 123RF