facebookyouredoingitwro There are a number of strategies to build a successful software startup but my favourite is to focus on a niche. Find a very specific group of people with a common problem and solve it well. As software startup founders, we have the luxury of picking very narrow niches (and still surviving) while non-software businesses need lots of capital. For example, you can build software to connect potato growers with buyers for a fraction of the upfront/ongoing costs of launching a business that provides innovative farming tools to potato farmers.  (Yes, potatoes are awesome.)

What’s ideal about niches is they allow you to start your business and survive, if you’re serious and dedicated. When leaving the comfort of employment and starting their first business, I feel that survival is all you should worry about. You’ll never become filthy-stinking rich and your face won’t be on the cover of any magazine, but you’ll make a living. Your lifestyle will be completely different: you’ll be happier because of your flexible schedule or, more importantly, your work will have a direct and visible impact on other people’s lives. Take this time to learn about being in business and grow as an individual: that’s all that is important. To use an oft used insect-related analogy, you’ll emerge from your cocoon as an entrepreneur after a couple years of trial and error.  (Other ones include Be A Cockroach but they smell.)

Now kick the training wheels off and really get started. You’ve gained some experience, built something and can start thinking about growth. You’re now in a much better position to decide what should be done to turn your business a multi-million dollar company. Most probably, you will have radically changed your original plan based on what you’ve learned. The dynamics of the game have changed: scalable growth, not survival, is your goal. 

In a niche, you can determine who to talk to (potential clients and partners) and can do so in a structured manner. Without one, you’re wandering. This is critical: you shouldn’t be building anything without getting validation that it is the right thing to build. Although we all like to think about software as innovative, the fact is that the technical risk is very low for most software startups; the real risk is market risk. Know the answer before starting your business: can you build something people will buy and can you sell enough of it to make it worthwhile? You can’t discover this on your own; lay out your idea on paper and talk to your target customers about it.

  • Don’t fool yourself into thinking your ideas are unique or that you’re spectacular.  Ideas are a dime a dozen; everyone has the same ones.
  • Given enough money, you can build and sell anything. Know how much you have and what you can accomplish at your size. Drop the ideas you can’t properly build or commercialize and move to something realistic. I’m sure you could genetically engineer unicorns if you had a billion dollars, but do you see Mark Zuckerberg peddling unicorn meat?.

This brings me to my main point: stop trying to build the next Facebook. By this I don’t mean “avoid building social networks” but rather “stop trying to be an exceptional anomaly” because you will fail. You’re not a contestant on “Who wants to be a billionaire?” and the odds are stacked against you. Anomalies are, by definition, rare. However, everyone has heard of these companies, making them appear as within reach and misleading hordes of would-be entrepreneurs. You should have large scale ambitions, but past a certain point you become a dreamer, not an entrepreneur.

Go niche. Work hard. In a couple years, you may be able to attack the larger market you originally had in mind because you now have both the expertise, the contacts and the funds to execute on your original larger-scale idea. Step out of the dream, enter reality and you may be able to set the stage to actually achieve what you dreamed about. Otherwise, you’ll end up like one of the weirdos screaming they invented Facebook in front of a local pub on St. Patty’s day. Additionally, if The Social Network is accurate, Facebook was actually niche-specific (Harvard only) in its early days.

I smile when I see businesses with niche focus and would have liked to have seen more at the latest Ottawa DemoCamp. Even if the product/niche evolves over time, I believe they have a greater chance of survival. Here are a few sites that exemplify the strategy:

Astute readers may have noticed that the above list includes a link to our software product for the franchise industry: FranchiseBlast. We spun-off some content from our corporate website onto its own website for marketing purposes and to reflect our current focus on software for mobile/service-based franchises. More on this in an upcoming blog post.

I’d like to know your thoughts on taking these types of niche businesses to the next level. Seems like the most common strategies are:

  • Same product, different vertical [if the company focuses on scaling product sales]
  • Generalization to many simultaneous verticals [same as above, but harder to accomplish]
  • Product diversification (new products) in same vertical [if the company provides value-added services in addition to a commercial product]

Are there any good success stories in this area? Spectacular failures? You tell me!