In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Table of Contents
Niche positioning
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
Transitional business model
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable businessmodel.
Non-linear competition
Direct competition is a linear way to look at the business world, and compare a company with other similar companies, in the same industry. An example is comparing Netflix with other streaming services. On the opposite hand, the indirect competition looks at the core asset, and potential long-term overlaps. For instance, Netflix’s main asset is attention, and if you look at attention you might compare Netlfix with other services, beyond streaming, like perhaps TikTok.
Business scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable businessmodel. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The Process From Niche To Scale
1. Identify a Microniche:
Start by identifying a specific subset of a broader niche or market. This subset should be specific enough to target precisely but have enough potential customers to make it viable.
Purpose: Avoiding direct competition with larger, established players.
Example: Instead of targeting the broad category of “fitness enthusiasts,” focus on “vegan fitness enthusiasts who practice yoga.”
2. Adopt a Transitional Business Model:
Once you’ve identified your microniche, use a transitional business model to enter the market and gain initial traction.
Purpose: To validate the business idea, secure initial capital, and refine the long-term vision.
Example: Start by offering a subscription-based service to this niche, then transition to a freemium model as you gain traction.
3. Understand Non-Linear Competition:
Look beyond direct competitors in your industry and consider indirect competitors who might be targeting the same core assets or attention of your audience.
Purpose: To identify potential threats and opportunities outside the direct line of competition.
Example: If you’re a streaming service, don’t just compare yourself to other streaming platforms. Consider platforms like TikTok that capture audience attention in different ways.
4. Scale the Business:
After validating the product or service within the microniche, begin scaling the business to target wider market segments.
Purpose: To expand reach, increase revenue, and establish a dominant position in the market.
Steps:
Traction: Initially, focus on gaining traction within the microniche.
Business Model Validation: Once traction is achieved, validate the business model’s sustainability.
Expansion: Begin targeting broader segments and diversifying product or service offerings.
Alignment: Ensure the product, business model, and organizational design are in sync for wider market penetration.
Case Studies
1. Identify a Microniche:
Example: Beyond Meat. Instead of targeting the broad category of “vegetarians,” Beyond Meat specifically targeted the microniche of “meat-lovers looking for plant-based alternatives that taste like meat.” Their products are designed to mimic the taste and texture of meat, appealing to both vegetarians and meat-eaters wanting to reduce meat consumption.
2. Adopt a Transitional Business Model:
Example: Airbnb. Initially, Airbnb targeted the microniche of people attending conferences who needed a place to stay. They started by renting out air mattresses in their apartment (hence the name “Air Bed & Breakfast”). As they validated this model and secured initial capital, they transitioned into a full-fledged platform for people to rent out their homes or rooms to travelers.
3. Understand Non-Linear Competition:
Example: Netflix. Initially, Netflix might have viewed its primary competition as other DVD rental services. However, as they transitioned to streaming, their competition became more varied, from other streaming platforms like Hulu to cable TV to video-sharing platforms like YouTube, and even video game platforms. They’re all vying for the same thing: viewers’ attention.
4. Scale the Business:
Example: Spotify. Spotify began in Sweden, targeting the microniche of Swedish music lovers looking for a legal way to stream music. Once they gained traction and validated their subscription-based model, they expanded to other European countries before entering the U.S. market. They then diversified their offerings with podcast hosting and streaming.
Another Set of Examples:
1. Identify a Microniche:
Example: Dollar Shave Club. Instead of the broad category of “men who shave,” they targeted a microniche of “men who wanted quality razors delivered monthly at an affordable price.”
2. Adopt a Transitional Business Model:
Example: Slack. Originally, Slack was a gaming company named Tiny Speck. When their game didn’t gain traction, they pivoted to focus on an internal communication tool they’d developed for their team, which became Slack. They transitioned from the gaming industry to the team communication platform market.
3. Understand Non-Linear Competition:
Example: Amazon. While initially an online bookstore, Amazon’s competition is now vast and varied. From retail giants like Walmart to streaming services like Netflix to cloud services like Google Cloud, Amazon competes across multiple non-linear domains.
4. Scale the Business:
Example: Zoom. Initially, Zoom targeted remote teams needing a reliable video conferencing tool. As they scaled, they expanded to serve large enterprises, educational institutions, and even casual users, especially evident during the COVID-19 pandemic when everyone needed video conferencing.
Key Insights
Niche Positioning and Microniche Identification: In the era of dominant digital super-platforms, identifying a microniche, which is a subset of potential customers within a niche, can be a strategic approach for digital businesses. Starting with a microniche helps prevent direct competition against large platforms, and as it grows into a niche and eventually a market, scaling becomes a viable option.
Transitional Business Model for Traction and Capital: Transitional business models are used by companies entering a market, often a niche, to gain initial traction and validate their ideas. It serves as a reality check and allows the company to secure the necessary capital. This phase helps shape the long-term vision and establish a scalable business model.
Non-Linear Competition: Rather than engaging in direct competition with similar companies in the same industry, non-linear competition focuses on core assets and potential long-term overlaps. For example, a company like Netflix might be compared not only with other streaming services but also with platforms in different domains, like TikTok, as both compete for attention.
Business Scaling and Market Segments: Business scaling involves the transformation of a business as its product is validated by wider market segments. It starts by gaining traction in a small market segment and then aligning the product, business model, and organizational design to enable expansion to broader market segments.
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable business model.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
