August 9, 2022

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Why Intelligent Entrepreneurs Like Mark Cuban Embrace the Rule of Niche at Scale

Someone I know wants to start a small business. He’s eager. He’s enthusiastic. He’s the right age. (While any age can be the right age, research reveals that older entrepreneurs tend to be more successful, even with tech startups.) 

He has an idea, and he’s thinking big. “Disruptive big,” as he puts it.

Problem is, his idea involves underwear.

Not that an underwear startup is a problem in itself; Mack Weldon launched with underwear and socks. But he hasn’t come up with new fabrics. Or new styles. Or new designs. Or a new marketing twist.

For him, it’s all about market size: Everyone wears underwear.

Yet, paradoxically, that’s a real problem. As Mark Cuban says, “When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?” 

“If you walk into a competitive environment,” Cuban continues, “and they still know more about the business than you do, and more about your customers … you’re going to lose.” 

Massive product categories naturally attract major competition. Launching against legacy brands with extensive distribution is almost impossible without meaningful differentiation and considerable marketing spend.

That’s what Derek Thompson, the author of Hit Makers: How to Succeed in an Age of Distraction, calls the paradox of scale: 

People who want to be big sometimes think, “I have to immediately reach the largest possible audience.” But in a weird way, the best way to produce things that take off is to produce small things.

To become a small expert. 

Thompson illustrated the point during an appearance on the Masters in Business podcast by referencing Tokyo, a city where a number of unusual stores exist: Stores that sell only vinyl records from the 1970s, or that sell only whisky from the 1980s.

Put those stores in a Des Moines suburb and they will fail. But in Tokyo, where 20 to 30 million people can reach the city by train, there are likely to be a few thousand people who love 1970s albums or 1980s whiskey. 

As Thompson says, “The internet is Tokyo.”

Which means the internet allows you to be niche at scale: A small, narrowly focused business that has massive reach. 

My friend can’t stand out if he sells just underwear. Sure, the scale is there — last year, total U.S. underwear revenue was $59 billion — but that scale means the market is far too crowded for a small player hoping to carve out a meaningful slice. The same holds true for any major product category; while many aspiring entrepreneurs still do the “Even if we just get a 10th of 1 percent of the market, that’s still 59 million!” math, choosing to enter a product category simply because of the market size is a recipe for failure.

The better approach, especially if you’re an entrepreneur with limited resources?

Be Tokyo, and think niche at scale. Leverage (or gain) specialized knowledge and stay highly focused in terms of product or service, while thinking extremely broad in terms of reach.

Maybe you’ll design underwear specific to the needs of, I don’t know, polo players. Small market, sure: 20,000 or so people around the world play polo — but because the internet is Tokyo, you can access those people. You can take advantage of a variety of marketing tools exist to reach them.

Then, instead of being one of 10,000, you’ll be one of a handful — and can learn more about your market, and your customers, than the handful of competitors you face.

And you can use the skills you gain to grow your business through other niches at scale.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

https://www.inc.com/jeff-haden/small-business-ideas-startup-ideas-start-a-business-entrepreneur-mark-cuban-how-to-decide-which-side-hustle-to-start.html