Market Expansion Strategy

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.

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

Non-linear competition

direct-competitors-vs-indirect-competitors — 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

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.