How to find your startup’s niche

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When you are a young startup with promising technology, capturing interest from many different industries is a big boost. However, it brings a new set of problems. There’s no safer way to dilute your brand and burn your capital than to spread far and wide across multiple industries. This increases customer acquisition costs and almost guarantees that you will be a second-tier alternative in many industries, but a market leader in none.

You cannot be all things to all people. But choosing which industry to focus on can be a real challenge – particularly if you’re working with a technology, like AI, that has countless potential applications. As a tech entrepreneur with a background in online retail, I naturally gravitated towards e-commerce businesses when sourcing customers for my company’s customer analytics platform. I could see that it would be a good fit, and it was. However, it was also a surprising success among pharmaceutical sales teams – an industry I knew a lot less about, but which is well on its way to being a $16 billion market for technology like ours.

So how do you choose a market to go after? And when? Here’s what I learned from my heart-to-head struggle to pick a lane:

Avoid pilot project purgatory

One of the hardest things to know is at what point you should start focusing on a specific market. There is a natural tendency to avoid closing doors, but this creates the risk of getting stuck in endless market research, due diligence, and test projects. Your returns quickly diminish.

In 2018, my partner and I built our company around technology that applies AI to data-driven analytics to understand and influence the customer journey. We held numerous meetings and spoke with people in at least 10 different industries – including supply chain, lighting factories, IoT devices, pharmaceuticals, e-commerce, advertising and cybersecurity. We had several offers to work on paid pilot projects, and we accepted several, which helped us refine our product. But after about two years of projects and meetings, it became clear that we were getting less and less from each one. When COVID arrived and threw everything into flux, we had already decided that the time had come to focus, but this forced us to quickly choose between e-commerce and pharmaceuticals, our two most potential markets. When an opportunity presents itself, you cannot hesitate.

Related: How to find the perfect niche

If an industry is excited, it’s saturated

One of the biggest mistakes is going for what’s sexy now, because at that point it’s already too late to enter the market. Hype isn’t a useful metric, and you can’t stick with something just because it’s cool. If you’re not seeing good usage statistics for your product within three to four months, you need to stop and move on.

In our case, there were many voices, including investors, pushing us towards e-commerce. It’s certainly a busier industry than pharmaceuticals, but the market is so saturated, so we had to consider how we could compete. We wouldn’t be that special. We would be facing giants like Google Analytics, and that is difficult.

For any machine learning company, data is everything. As soon as we had a contract with a pharmaceutical organization, we had access to their data, so we could actually work on building a specialized product out of it. That was a great indicator that we were heading in the right direction.

Listen to market signals

The most important thing to consider is whether you are pushing your idea too far into a market or whether you are genuinely pulling your technology into it because there is a need.

I once had a meeting with a very smart investor who told me that everyone tries to sell their technology on the basis that it will lower their customers’ costs. But corporate customers are more excited about products that will make them money. The ROI is clearer.

During the pandemic, our product ROI was in focus in the pharmaceutical industry as their sales reps couldn’t get ahead of their customers. We started getting a lot of people on LinkedIn asking if they could try the technology. That’s when we realized we were on the path of the pharmaceutical industry. That kind of traction gets us excited. And if you don’t get excited about your user, then something is wrong.

You need to have some indications that you have a viable product: it has to make business sense, it has to make technology sense, and it has to make design sense, which means it’s easy to use. And especially when we’re talking about AI, it needs to make ethical sense. For pharmaceuticals, we tick all the boxes.

The next question for us was, how fast can we do this? Can we get it in front of enough users quickly? We could do this in e-commerce. The pharmaceutical industry was slower, but there was a greater long-term opportunity as we would be one of the first players in the market. We opted for the most difficult and risky option, but for a bigger win in the end. If it’s a little more niche, you’re more likely to have a bigger impact.

Related: Market optimization is the way to boost your late-career startup

If it’s head against heart, the head wins.

Frankly, I was more drawn to e-commerce. I’ve worked with a number of marketers over the years, the content is fun and the data is accessible. I felt emotionally pulled in one direction, but the business and technology opportunity was pulling me in another. Plus, it was a little sexier than pharmaceutical. Once again, I felt emotionally pulled in one direction, but the business was pulling me in the other. We were continually reaching our milestones in the pharmaceutical industry. And the reality is that entrepreneurs must be responsible to their investors and employees. So for the last couple of years, I’ve traded art for science, and I’ve been talking to people in the pharmaceutical industry every week to learn about their industry, their challenges, or even what their working day is like.

If you can grow in an industry that needs you, go for it. It might not be the sexiest, but it’s what will make a good deal.

Related: The step-by-step guide to finding your niche and target market

Helen Kontozopoulos is co-founder and chief technology evangelist at ODAIA, which helps predict customer activity and redefine workflow for pharmaceutical and life sciences commercial teams.

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