The Target Market Trap

The Target Market Trap

Ambitious entrepreneurs naturally aim to create large companies in large markets. They make their plans, build their newfangled products, assemble scrappy teams and then set out on their holy quests to be big winners.

But most startups don’t make it very far — most fail pretty fast. So what was the key problem? Was it their team, market, plan, “timing” or “not enough capital?”

From what I see, capable startup teams chasing big markets fail most often because they don’t narrow their target market focus enough in the early stages of their companies. They try to serve “everyone” in a potential big market rather than focus on a well-defined customer group where they can execute and win.

I call this the target market trap. How can you grow big unless you aim broadly from the start? It’s an easy trap for an ambitious entrepreneur to fall into, and it’s a common cause of startup distress.

When you are a small company, you should be focused on a small segment of the market that you can reach and serve with your meager resources — to the exclusion of the rest of the market. Laser focus is more likely to create early success that can then lead you to larger markets and eventually to your dream of “everyone” in the big market.

This is a strange idea to big-thinking startup leaders, but it’s really how the world works. You have to start small to get big, conquering consecutively larger markets as you grow. You just can’t do it all at once – even if you have lots of investment capital.

Surprise! Big companies started in smaller markets

All the big guys started small before they eventually conquered a big market. Amazon, Apple, Microsoft, HP, IBM, Google, Facebook, Walmart. Pick any big player these days. They may broadly serve big markets now, but all of them were laser focused on a specific small segment of their market in their early days.

  • Microsoft – Microsoft is the ultimate large, successful company that servers “everyone” with a variety of products. However, while their ambitious long term goal was “a computer on every desk and every home,” they started in 1975 as provider of BASIC programming tools for the first personal computers, then made operating systems for IBM PCs, then more development tools, then Windows, then Microsoft Office, then Windows Servers, xBox and others. Check out the Microsoft history timeline to see their progression.
  • Facebook – Facebook has quickly become a mainstream social website and is now used by over 500 million people. But Facebook didn’t start out targeting the masses. Far from it. At first, Facebook was only for Harvard students. Once that quickly caught on, they expanded to Ivy League schools, then to all university students, then to high school students, then everyone over 13.  Now parents and grandparents are signing up and Facebook is expanding internationally, but they didn’t start by serving “everyone.” It’s true – a business with a massive impact started to serve just the students on one campus. Facebook timeline
  • Amazon – Yes, Amazon sells everything that you can buy with one click on the Web, but in the beginning in 1996 they only targeted serious book buyers who had an Internet connection and were comfortable shopping online. This was a relatively small group in the beginning — compared to large market they serve today. Amazon timeline
  • Apple – Apple leads many exciting broad markets in digital media, personal computing and mobile consumer devices now, but they started out with products for computer hobbyists, families with kids and elementary schools. And Apple computers (Apple IIC, Macintosh) always addressed smaller niche markets in the PC world – for 30 years. Apple timeline
  • Walmart – In their first 10 years, Walmart existed only as a no-frills discount retailer in rural Arkansas with 15 stores, because Sears or Kmart would never go there. Now are the largest retailer in the world. Walmart timeline video

You get the idea. Try this with any big company you know. Where did they start? Pretty small and narrow at first, then they grew very fast as they expanded their focus.

The journey to being big starts by starting small and winning consecutively larger markets over time, rather than by getting 1% of a broad mass market, then 2% (often called “Chinese math“). Aim too broadly and you won’t have the traction, credibility or cash to stay alive long enough to win at any level.

Investors already know how this works. So do successful entrepreneurs and marketers.

I have found that most startups almost can’t focus narrowly enough, especially bootstrapping companies without outside investors. But this focus doesn’t mean you can’t grow extremely fast. All the companies listed above were growth superstars even though they started by serving narrowly defined markets.

You have to narrow focus so you can execute efficiently to succeed at something, knowing that bigger markets can be attacked once you’ve proven yourself and have more resources as you grow.

Dream big, but start smaller.