Choosing your startup’s initial market segment/niche: How to avoid the Sex Toy Dilemma and Find Your Bigfoot.
Some of the best advice I ever got was “build products you want to use and write content you want to read.”
With that in mind… let’s talk Bigfoot and the booming sex toy market!
The “Sex Toy Dilemma”
Friend pitching me a startup: “Did you know that sex toys are a $15 billion industry growing at over 5% each year?? If I just get 1% of that market…”
Me: “Impressive. So, what are you going to make?”
FPMAS: “Doesn’t even matter — was thinking I’d make something random and put it on Amazon. If even 0.2% of the market buys it I’ll be set.”
I live in the world of startup ideas. Good ones, bad ones, poorly thought out sex toy ones. This means I run into the “if I could only get 1%” line a lot. My response is always the same: “You won’t get 1% — you’ll get exactly 0%.”
This is not because a growing market means too much competition. And it’s certainly not because going after 1% of the market isn’t a lofty enough goal.
It’s because people aren’t dumb.
People buy products for a reason. They want to get from A -> B, regardless of what A and B are for them. A visionless, untargeted product won’t get anybody anywhere. You won’t fall ass-backwards into a product that 1% of a giant market buys.
If you want to build a sex toy because the market is growing — awesome. Here’s how you do it:
- Find a small, underserved niche within that $15bn market.
- Build a product customers in that niche desperately want, one that fits their specific need and is 10x better than what they have now.
- Slowly expand to adjacent markets.
The first step in that process is finding the underserved market. This is tricky — it’ll be either a) underserved because the market is new and growing fast, and a perfect product hasn’t emerged yet (meaning other people will also know it’s underserved, and you’ll have lots of competition very soon), or b) underserved because you see something no one else does. Your unique insight will mean no competition, at least for a while.
We want “b.”
This post describes tactics to narrow down the broader market your idea lives in to find a small, niche market segment where you know something no one else does. Where you believe in something others don’t.
We’ll call it… your Bigfoot.
When I started Find Your Lobster (a mobile dating app) in 2011, my Bigfoot — the thing I believed in that no one else did — was that the vast majority of new relationships for people under the age of 30 would start through mobile dating apps in the very near future. As obvious — or at least as possible — as that may seem now, almost no one believed it at the time. People laughed at me when I even brought it up.
“Only ugly people will use dating apps, or else they wouldn’t need them.”
Skeptical people are a blessing, as long as your instincts are on point. It left me with an untapped segment in an enormous broader market (online / mobile dating).
I had a window with limited competition to prove my assumption and build a product for an underserved market. I was able to ride the wave as customers in my specific early segment (single, Manhattan, only wanted to date friends of friends) actively used my first version. They pulled the product out of me — I just tried to keep up.
Sure, the competition came quickly. A bunch of us launched in a short period of time. But I always knew that was a possibility. I knew going in this was a market with gigantic upside and basically no entry costs. Secrets wouldn’t be held long, especially one that didn’t take a ton of insight.
The better your secret, the less possible it seems, the longer the window you’ll have to build something great before others catch on.
How’d I have this revelation in the first place?
I knew my customer base — I was the customer base.
My single friends had a problem — it was really hard to meet people after college, especially in NYC. I knew exactly what they needed. If I built a product specifically for them, one that didn’t look like any of the products they associated with the stigma-filled industry, one that was funny, fun to use, removed rejection, and showed them single friends of friends, they’d use it.
My outstanding skills, the ones that I was sure would separate me from the rest, were predicated on knowing my customers and being funny. That was it. That was my shot.
I built something that served my audience the way I wanted it to, and had a personality that would ease them into a market they weren’t sure they wanted to be in. I’d found Bigfoot. Unfortunately, he wasn’t hiding very well, and the competition (among other things) proved to be too much.
But picking the right market segment gave us a fighting chance.
You may be considering a few segments — here’s a good way to evaluate them:
Market Segment Checklist:
- Product Potential — can you build something 10x better than what currently exists? Is the market desperate for this project?
- Experience & Vision — do you see things others are missing? Do you have an overwhelming amount of knowledge and experience in this market?
- Size — will the eventual market be big enough to make this worthwhile to you? Will the initial market provide enough cash to get you to the bigger one?
- Momentum — is this market exploding or about to explode? Are there trends or waves you’ll be able to ride?
- Longevity — is this a market you would like to be in 10 years from now? Will your product idea still be relevant?
- Competition — not necessarily existing competitors, but if you have this insight, how quick will others be to catch on? How many people can reasonably start this same company? Anyone can have my dating insight — not many people can have an insight for a product that’ll replace an MRI machine.
- Influence & Spending Power — How influential are the customers in your initial segment — do they spend money, drive customers in adjacent segments, etc.?
- Access — Do you have unique access to customers (end-users) in this market? Access at all?
- You — Do you personally want to work in this market for years to come?
“What about Market Sizing? WHAT ABOUT TAM!?!”
I can hear the MBA’s freaking out now. “Shouldn’t the exact size of the financial opportunity drive the decision?”
Yes and no.
You want to be in a large, growing market that can support the type of company you want start. If you want to be a billionaire, you need a market that can support massive scale and growth. If you want to live a comfortable life doing something you love — called a “lifestyle business” and sometimes unfairly and confusingly looked down upon in the startup world — your eventual market can be smaller.
You may have heard about TAM (Total Addressable Market), a popular way to evaluate the size of an opportunity. The idea here is some form of:
“If we charge $5 / month, each customer stays on average 8 months, and there are 500,000 people who would buy this, then our TAM is $5 x 8 x 500,000 = $20mn.”
It’s tough and unrealistic to get this type of clarity at this stage of the game. That means you’re making stuff up when you could be validating and speaking with customers.
What you can do is get a rough idea about what size of company this market can support. The dating market is obviously huge. The market for a Netflix for potted plants may be quite a bit smaller.
So again, it becomes all about you. What do you want out of this opportunity? Why are you doing it in the first place? How does the market perform against the checklist above?
We’ll deal with cost models and financial projections once there’s clarity surrounding the product details / pricing / customer feedback. For now, make sure the market fits your needs, then we’ll speak with customers to make sure you can serve theirs.
Sex toys and Bigfoot, man. Sex toys and Bigfoot.
Stumbled on this post? It’s supplemental info for Tacklebox, a toolkit to help people launch their startup ideas. Got an idea? Go ahead — Stay a while.
Further Reading on Choosing an Initial Market:
- Zero to One: Notes on Startups, or How to Build the Future, Peter Thiel. **MUST READ**
- Ways to think about market size, Benedict Evans.
- The “Thin Edge of the Wedge” Strategy, Chris Dixon.
- 1,000 True Fans, Kevin Kelly.