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Walling on Startup Niches

·9 mins

How do you find folks to build for?

  • If you can find a small group of people and make them amazingly happy, you will make money
  • The genius of niches is they are too small for large competitors
  • It’s cheaper to advertise to 5,000 people [Than 50k], and the odds are higher that they all hang out in the same place, be it a website, forum, blog, or magazine. The competition is also a lot lower
  • What matters is finding a group of people who need your something more than they need the money you’re charging for it
  • Provide your product with no hassles at a price where you make a healthy profit and you’re set
  • If you choose a niche market and focus so tightly that your product becomes the best in class, members of that niche will have no choice but to use your product
  • Here’s an exercise: Pick one person you know well…your spouse, your brother, your sister, a parent, etc
    • How hard would it be to design a product that you’re sure this person would use… not very hard, right?
    • That’s because you know so much about the intimate details of their life
    • Based on your knowledge of their interest in playing death metal on the banjo, for example, you might build a website that aggregates every death metal banjo tablature on the web
    • Since your product would be so laser focused to their interests, it wouldn’t already exist
  • The larger a market, the more money you’ll need to spend in order to locate people willing to buy your product
  • Instead of marketing to everyone who likes to travel, how about tailoring your product to people who like to travel to the American Northwest?
  • If a publisher started a magazine aimed at a niche, and full-page ads are less than $5,000, it’s a good niche to explore
  • If you provide something so uniquely targeted towards them you can focus the ad itself, your copy, and your product on what they need, they are more likely to visit your website
  • Owning the majority of a $500,000/year market is enough to support a very profitable startup
  • Less competition means you are able to charge more for your product, resulting in higher margins
  • Niche Markets Are Not Used to Good Marketing
  • If you take out an ad on websites they visit, advertise on AdWords for similar keywords, and have a Facebook group, in a small niche it’s likely they’ll run into you more than once over a short period of time
    • Given the number of marketing messages we hear every day, hearing about anything more than once has become remarkable
  • Building an invoicing solution that satisfies every single pain point for pool cleaners is not that difficult. They have well-defined needs that are common to pretty much anyone who services pools for a living

Niche Ideas

  • Finding a niche and deciding on a product is all about marketing, and marketing is a fuzzy, imprecise discipline
  • Without a niche “insider” your chances of success are dubious at best
  • The best place to start is with your contact for the niche
  • Everyone loves to talk about their daily woes, and especially about how awful their software is
  • Make two columns on a piece of paper
    • In the header of the left column write “Person” and in the right one write “Hobby or Work Experience.”
    • Now for each row write the name of someone you know, including yourself, friends, relatives or colleagues, and write their work experience or hobby in the right column. These are your warm niches
    • Determine what kind of software each of these niches desperately needs
  • Approach #1: Look at All Areas of Your Life
    • Examine your hobbies, interests and work experience
  • Approach #2: Look at Occupations

Evaluating Niches

  • Consider the cost of marketing to a specific niche
  • You want a market that is already looking for your product, even if [your product] doesn’t exist. 
    • Creating demand is very, very expensive while filling existing demand is, by comparison, cheap
  • Any target market you choose must be online and you must have a product that solves their problem
  • You’re going to want to narrow your focus to consumers, small businesses, or in certain cases, both
    • These demographics have purchasing authority, make fast purchasing decisions, and search for solutions online
  • There are two questions you need to answer about a potential niche:
    • Is the market large enough?
    • Is there an inexpensive way to reach them?

Right Size Niche

  • If a market has a magazine devoted to it, it’s large enough to provide enough customers
  • Look at census and labor statistics to get an estimate of your market size.
  • “Market size” research should involve the following:
    • A web search for related magazines and websites
    • Tracking down their advertising rate cards
    • Reviewing their circulation (for magazines), visitor statistics (for websites), and rates
    • Entering websites without rate cards into to check traffic levels
    • Checking in with your friendly neighborhood bureau of labor statistics for a sanity check on your findings
  • If you’re taking a trip to your local library you can check out…The Standard Periodicals Directory
  • Visit the U.S. Bureau of Labor Statistics and search for Occupational Employment Statistics
    • A couple clicks later and you find there are 23,240 Marriage and family therapists in the U.S (as of April, 2009)
  • Be wary of a market if you are unable to find a handful of websites or a magazine/journal dedicated to it, and the labor statistics claim less than 10,000 members
  • The second question you need to ask about a potential market is: how will you reach them in an inexpensive, sustainable manner?
  • When looking at your marketing plan you should actually be thinking:
    • “If I could get only on the front page of [small-but-very-focused-niche-website].com.” 
  • Find the website(s) where your real market hangs out. These are the people who will actually buy your product

Inexpensive Marketing

  • A large market is not helpful if you can’t reach them economically through a specific website or magazine
  • If a niche does not have a magazine devoted to it, it’s not necessarily too small
  • If a full-page magazine ad is less than $5,000, the market is small enough that you’ll be able to effectively market to it
  • You must have an inexpensive, ongoing source of new customers
  • The Top Shelf approaches focus on two key areas:
    • Building an audience
    • Search engine optimization
  • Second Shelf approaches….include:
    • Building internet buzz and referral traffic
    • Joint venture partnerships
    • Article marketing
    • Cold calling
    • And so on…
  • Industries like pool cleaners or countertop installers have business [leaders] who are pushing the industry forward, finding and adopting new techniques, and communicating those techniques to the rest of the industry through conferences, trade shows, trade publications, online forums, social networks or mailing lists
  • Having a handful of places where they congregate makes marketing much easier since you can simply attend (or sponsor) trade meetings or conferences
  • If you decide to use direct mail, cold calling or direct email marketing, there are lists available for specific industries. These lists will likely convert well if your product is targeted at the niche

Conversion Rates

  • Conversion rate will refer to the percentage of website visitors who buy your product
  • Conversion rates vary based on a number of factors including the source of the traffic, your sales website’s effectiveness, and whether your product is properly priced
  • If your price point is in what I refer to as the consumer range of $1 to $50 and your product is priced appropriately for your market:
    • Your conversion rate should be between 1% and 4%
  • If you’re priced between $50 and $1,000 or offer recurring pricing and your product is priced appropriately for your market:
    • You’ll most likely convert between 0.5% and 2%
  • Excluding advertising, which can vary depending on your campaign, a very general rule:
    • 1/3rd of traffic from search engines
    • 1/3rd from incoming links
    • 1/3rd from direct traffic
  • It will take a few months to begin ranking for enough terms to bring in a noticeable stream of traffic
  • Gauge demand for a product before you build it based on monthly Google searches for certain terms
  • Keyword difficulty tools can give us an estimate of the difficulty to rank for a term
  • Step 1: Google AdWords Keyword Tool
    • At the time of this writing, the AdWords Keyword Tool over-estimates search traffic
    • The rule of thumb is to take the value it shows and cut it in half
    • Multiply that 50% value by 4 to get an approximate overall traffic if you ranked #1 for this keyword
  • Step 2: Choose Keywords
    • Once you’ve chosen an anchor keyword like “attorney billing software” look at the tool results for other related keywords and track them in a text file
    • Keywords like “legal billing software” and “attorney invoicing software” qualify as related terms
  • Step 3: Keyword Difficulty Tool
    • Get a rough approximation (based on the number of search results returned in Google) of how hard it is to rank for this term. The lower the score, the better
  • Step 4: Sanity Check
    • Google for your keyword. Navigate to the first result in the list
    • Look at the PageRank of this page using the Google Toolbar (if you don’t have it, get it)
      • View the source of the page and look at the meta keywords and description
    • Enter the domain into Network Solutions Whois. Older domains have more credibility in Google
  • Step 5: Finally, using the Google Toolbar,
    • Click on the PageRank meter and from the drop down list select “Backward Links.”

Stand up a Mini Sales Site to Test Conversion

  • Make it 2-3 pages, where each page has one very specific goal
  • If your product is a SaaS or mobile application, try to get visitors to click a “buy now” button on your Pricing & Sign-up page
  • When someone clicks “Try it” or “Buy Now,” track conversions using Google AdWords and notify the prospect that your product is still in development
  • Ask for their email address so you can notify them when you launch
  • You’ll be able to see how much money you spent for each conversion
  • After sending 100-200 visitors to your site, look at the numbers of “trials” or“purchases.”
  • Assume you will convert between 2% and 5% of people who clicked “try now” or“download free trial.”
  • Assume 40% of the people who clicked “buy now” would have completed the purchase