One of the most common problems I see in mentoring founders is the “boil the ocean” approach. Everyone is looking to build a horizontal application, a platform or both! The problem with this approach is that when you try to be all things to all people you can end up being not enough of anything to matter to anyone.
The classic case for starting out by targeting a niche, then dominating it and moving on to market adjacencies, is Microsoft. Bill Gates and Paul Allen targeted the nascent microcomputer industry when they formed Microsoft. Being programmers themselves they immediately realized that machines like the Altair were very difficult to program. Being familiar with the BASIC programming language, their first project was to port a version of BASIC to the Altair – and Altair was their first customer. Basically Microsoft built the company on building programming languages for developers.
By their good fortune IBM came calling on Digital Research for an operating system for their top secret PC, code named “Peanut.” But Gary Kildall, the founder of Digital Research, was off flying his plane that day and his wife refused to sign IBM’s NDA. So IBM went to Microsoft where Bill Gates did not let the fact his company had no operating system for any computer, let alone IBM’s Peanut stop him. Microsoft went down the road and purchased an OS for the 8086 from a developer they knew for $50,000. When the Peanut arrived at Software Arts under extreme secrecy the OS diskette was labeled “Seattle Computer Systems” not “MS-DOS” for Microsoft DOS, not “PC-DOS” for IBM’s version.
Gates used his relationships with developers built selling them programming languages to get applications programs like databases developed for MS-DOS. And thus from programming languages to operating systems to applications programs Microsoft moved into adjacent markets where its enormous leverage and brilliant strategies enabled it to dethrone incumbents like Word Perfect.
I was reminded of this strategy by the story in today’s New York Times A Toaster on Wheels to Deliver Groceries? Self-Driving Tech Tests Practical Uses by Cade Metz. As Cade Metz wrote “… self-driving is still a technology in search of a purpose.” This is the most common problem with engineering driven startups, they have a solution in search of a problem. Instead of finding a small niche where their tech can be proven out – called “proof of concept” – before tackling larger markets, they worry that a niche is too small and thus flail and fail trying to find a large market for their technology.
Tarin Ziyaee, who worked on autonomous technologies at Apple and who recently left Voyage, a company that is bringing self-driving cars to retirement communities has a great quote: “After maybe biting off more than they could chew, people are concentrating on one particular part of the problem they might be able to actually make money from,”
Nuro, which raised $92 million in funding, decided to focus on creating tiny self-driving cars — they measure 104 inches long by 43 inches wide by 70 inches high — that would solely make local deliveries. That’s a small and practical niche. By removing the issue of passenger safety, since there are no passengers in a Nuro, they’ve gone to market much faster than the very ambitious passenger vehicle ventures like Waymo.
Of course, the issue with Nuro is the size of the demand for “last mile” delivery of goods and services like food and laundry. But by getting to market quickly with a relatively modest capital outlay they will find out pretty quickly.
Finding a niche and dominating it is the implementation of the focus, focus, focus strategy. I’ve never heard of a company going out of business because they were too focused, but many have failed for lack of focus.