As I’ve no doubt mentioned before, a very common problem with the founders whom I see is that they always want to boil the ocean. I encourage them to start by boiling a teaspoon! If they succeed there they can move up to a cup, then a pint, and so on. There are three mega-successful companies who have expanded to adjacent markets over time with brilliant go-to-new-market strategies.
Microsoft
In 1975 Paul Allen and Bill Gates founded Microsoft with a grand vision of Microsoft products in every business and in every home. A great vision that, of course, missed mobile. And interestingly enough forty-four years later, they are still missing in action in the mobile market.
But Bill and Paul started with the proverbial teaspoon: focused exclusively on programmers, for what were then called microcomputers. Being programmers themselves then knew their market cold. And they started with a single and relatively simple product, porting the BASIC programming language, developed by John Kemeny for Dartmouth students, to the first microcomputer, the Altair. Microsoft dominated the market for programming languages for microcomputers, in fact they had a monopoly. I can’t even remember who was in second place. Bill Gates was incredibly shrewd. When IBM came calling for an operating system for their then secret PC, codenamed the Peanut, instead of turning IBM away because they hadn’t developed an OS themselves, they cleverly purchased an OS from a developer practically down the street, did some polishing around the edges, and created PC-DOS for IBM. But brilliantly Microsoft managed to keep all rights to the software and thus created MS-DOS, which they licensed to all the IBM clones. Talk about a monopoly! For decades no one challenged Microsoft and MS-DOS. The point of the Microsoft story is they took what they learned from developing and selling programming languages to a huge adjacent market, operating systems; from which they expanded to yet another gigantic adjacent market, tools for knowledge workers, AKA, Microsoft Office. The rest was history – you can read it elsewhere, which I recommend you do.
Microsoft is ancient history to virtually all my mentees who weren’t even born when Microsoft was founded, let alone when IBM helped make them a colossus. So what’s another example of a more modern go-to-a-new-market company? How about Facebook? Mark Zuckerberg saw how overwhelming demand from customers overwhelmed social network pioneer Friendster, constantly crashing their servers, and angering users to much that they were primed for another, robust social network. So Zuckerberg carefully expanded from his beachhead at Harvard, first to the Ivy League schools; then to other elite universities, like Stanford; then to high schools, and then to anyone with a .edu email account. This phased-in strategy enabled Facebook to build up their data centers in advance of demand, thus ensuring their users a robust app and picking up those users from Friendster as well as those from MySpace, who got tired of the personalized pages that looked like crazed graffiti walls. Of course, Zuckerberg was far from done. Finally, confident that his data centers had the capacity, he let in anyone with an email account who was willing to use their real name – no anonymity was allowed on Facebook. Again, the rest is history (though some of it has proved to have a very dark side).
Netflix
Another great example of a company that found a niche and dominated it before they expanded to a new market, or in Netflix’s case a new mode of delivering its products to its customers. Netflix was founded in 1997 by Reed Hastings and Mark Rudolph. The niche they chose to start with was heavy users of video disks who were getting tired of paying late return fees to Blockbuster and other video stores that rented movies and TV shows on video disks. Again, my mentees might not be old enough to remember Netflix’s ubiquitous red envelopes they used to mail their rental disks back and forth to users. Netflix solved a huge problem for users – no more late return fees! And you could keep those movies as long as you wanted. My family had a subscription for three movies at at time each month. When we returned one movie we could get another. But Netflix was not satisfied with this clunky way to deliver movies and TV shows to its users. The MP3 file format had enabled first downloads, then streaming for music. Video streaming was not that far behind and Netflix jumped on that technology with both feet. Now their users could get instant gratification, and no more fussing with those red envelopes! And while Netflix focused only on the U.S., the advent of streaming has enabled them to expand into the huge international market.
So while each of these three companies started with different customers and then expanded to new markets very differently, they all moved strategically into adjacent markets only when they had dominated their initial niche market.
You too can find a unserved niche market. My mentee venture Candorful helps returning veterans nail the job interview, even though most vets have never even had a job interview before. Candorful started with a focus only on returning vets, but soon realized that the spouses of those vets were also needed help landing jobs. So you don’t have to be a Microsoft, Facebook, or Netflix to find a niche and start by serving it extremely well. Candorful is just the most recent example I can give, some others are still in stealth mode. But if they can do it so can you: focus on a niche market before you expand to an adjacent market. Only expand to a new, adjacent market when you dominate your niche.
Mentorphile 