Unicorns are all the buzz these days. Companies such as Snap and Dropbox inspire an entire generation of entrepreneurs around the world to dream big. But by focusing on major problems, huge markets and billion-dollar exits, many entrepreneurs take the wrong approach to growing their business and miss the chance to create and control a profitable company.
One of the most effective ways to start a company with little or no investment is to establish a niche. Here are five tips to help you find yours.
1. Solve a specific problem.
The key to owning a niche is tobe focused. Start by addressing a narrow problem that you can solve within the first couple of months, if not weeks. If you pick a problem that isn’t actually a problem, you can fail quickly and try again. If you pick an actual problem but your solution is not good enough, it is usually pretty easy to test the market and figure out what you need to add or change in order to reach product-market fit.
Start with an extreme focus and only a few clients. You’ll be able to hone your offerings and later attract others.
2. Find one client who will pay you.
A great way to find a specific problem is to find one client who will pay you to solve their specific problem. Not only does this give you early cash flow, it also eliminates the risk of building something no one wants. Furthermore, by working closely with the client you get to know all of the problems that they face and gain direct feedback that often can be invaluable. This strategy is especially effective for B2B companies, but it can also be applied to some customer-facing challenges.
I recently spoke with Chris Walker, a Denver-based SEO expert, who explained how he used the principle of one startup client to build his company. “Once you have developed a great solution for one client, simply start looking for other clients like your first one,” he said. “One of the safest ways to start a company is to start out providing services to clients to fund your operations, and to use the feedback and the client cash flow to build something that can scale.”
3. Focus on an underserved market.
In an underserved market, challenges are not being addressed properly. They are either not sexy enough or not big enough to attract the attention of VCs and other investors. Often, by starting out in such a market, you can reach profitability much quicker and use the profits to expand your niche. For example, you could start out by providing your services at a low cost to tap into a market of customers that otherwise would not have the budget for such a service.
4. Find an industry with a tech disconnect.
Industries that are controlled by old and large companies are often ripe for innovation. If the big players in the space seem complacent, or they don’t have access to or knowledge of the technologies that could disrupt the industry, a young company will have a chance to compete. Because young people are building most of tomorrow’s technology, it is best to stay away from problems that a lot of young people — in particular, college students — face.
5. Don’t go chasing VC money.
Venture capital has become the holy grail of the startup scene. Founders are obsessed with getting funding, but not always for the right reasons. Before seeking investor money, especially from a VC, ask yourself if this is actually the only way for your company to succeed. You should be aware that by accepting venture capital, you will have to give up large chunks of your company throughout the process while putting enormous pressure on your company to grow.
Remind yourself: Not every company is meant to be a unicorn. More often than not, building a profitable company and owning most of it is an admirable goal.