Facebook currently has 1.55 billion monthly active users. 1.55 billion!
To get to that size, they must have been building for a huge market right from the start, right? Well, no.
Here is what the first homepage for TheFacebook looked like when it launched:
It was a digital version of the paper student directory that Harvard students were given when they enrolled. As you can see, its functions were very limited. The website was aiming at Harvard undergrads – about 8000 people. And within a couple months of launching, nearly everyone in that group was using the site.
After a while, they dropped the “The” from “TheFacebook” and expanded to all of the Ivy League – around 40,000 people. Once again, the adoption rate became very large, very quickly. They slowly added features, like The Wall – this happened when they expanded their market to everyone that had a .edu email address – 20 million people or so.
About five years after it launched, Facebook finally opened up to everyone.
Their markets looked like this:
When you launch something new, you need to have a handle on a couple of things: what the overall potential market is, and who your first niche will be.
The problem that we often have when we launch something new is that we often only think about the big number. So we hear things like “our target market is everyone” or “analysts say that total value of our field in 2025 will be $25 billion!”
Unless you’re Facebook, your customer is never “everyone.” You have to find that first niche – you have to focus. You need to figure out what your version of Harvard for Facebook will be.
In one of our Lean LaunchPad programs, we got Mick Liubinskas from Pollenizer and Muru-D in to talk about focus. The Muru-D link has a video of one of his talks, which you should check out. You can also find a .pdf of the book he wrote with Phil Morle on this here.
Mick made a bunch of great points, but his big one is that you win through focus – and you focus by identifying the customers with the most pain that you can remove. He drew a graph that looked like this:
What it shows is that in most markets, there are a small number of people whose needs aren’t being met at all – their pain level is high, while the majority of people are basically satisfied with what they’re getting.
Here’s an example. Do you need a driverless car today? Even if you’re excited about the potential of the technology, the pain of not having one probably isn’t too high. There are plenty of other options now – for the majority of people the pain of driving themselves isn’t too high.
So if you’re doing research on autonomous vehicles today, where do you go to maximise the impact of your work? Despite this week’s deal between GM and Lyft, driverless cars for everyone are still years away. Does that mean there’s no opportunity?
No. Many people don’t realise it, but autonomous vehicles are already at work – in the coal mines of Western Australia.
Why is this the first niche for autonomous vehicles? Because the pain there was really high. The trucks are enormously expensive, so adding the expense of the driverless technologies is relatively trivial. More importantly, the mining companies out there have really struggled to find truck drivers. During the mining boom, there were very few people available, so the miners ended up paying astronomically high salaries to people for driving trucks. By introducing autonomous vehicles, the mining companies are able to eliminate the cost of drivers (and also reduce industrial relations issues in that area as well), while also improving safety on their mine sites. In time, the firms involved with this project will learn, get better, and expand into bigger markets.
This is the way that new technologies go – you start in the niche with the highest level of pain, which enables you to learn about the technologies, about peoples’ needs, and about what your business model should be.
These ideas raise some important points:
- Find your first segment through customer development. The way to find this first niche is through customer development interviews. They help you understand what people are trying to achieve, and what their problems are. If you do them correctly, you can also find the people and firms that are currently experiencing the highest levels of pain – they are the ones that are actively looking for solutions.
- You need to talk about both the high-end potential and your first niche. If Mark Zuckerberg had asked for a bunch of money to build a website for 8000 Harvard students, he would’ve been laughed out of the room. But if he had gone to investors and said “I’m building a website targeting every person in the world,” he also would have been laughed out of the room. You need both parts – the long-term upside, but also your first wedge into the market.
- Niches with pain are what leave openings for disruptive innovations. It’s no coincidence that Uber started in San Francisco, where the taxis are notoriously bad, rather than in London, where the taxis are outstanding. Two of the big innovation research areas recently have been user-led innovation, and disruptive innovation. Both of them depend on niches experiencing pain as the drivers of innovation opportunity. In an established market, the dominant players focus on reach the majority, which is the group with relatively low levels of dissatisfaction with the current state-of-play. That creates opportunity around the edges.
If you’re doing a lean startup, you need to do two things. Identify the potential users in your market that are currently experiencing the most pain, and start with them. Once you’ve identified this first niche, then you can plan your expansion route.
To succeed, you need to know both things.
Note: Over the past year, I’ve been running (with help, of course!) a bunch of Lean LaunchPad programs with the Commonwealth Science and Industrial Research Organisation (CSIRO) aimed at increasing the impact of all the great research that they’re doing. This is part of a series reflecting on what we’ve learned through the course of six programs involving 40 research projects and more than 250 people. The other posts are:
- Part one: The How and Why of Customer Development
- Part two: Is Our Business Model Ready to Launch?
- Part three: How Big is Your Market and Where Will You Start?
- Part four: What Assumptions Underlie Your Business Model?
- Part five: A Minimum Viable Product is an Object for Learning
- Part six: Move Sooner and Faster Than You Think You Can
- Part seven: How to Find Your First Customers
- Part eight: How to Make Good Lean Startup Hypotheses