The following is still a bit inchoate but I've been thinking about it for a while and it's time I threw it online. I'm also pretty tired but I haven't blogged in a few weeks and wanted to get something up tonight; apologies for any inarticulateness on my part.
Steve Blank has identified four flavors of entrepreneurship / startups:
- Startup -> Small Business (e.g. Mom and Pop shops)
- Scalable Startups -> Large Companies (Most of Silicon Valley, e.g. Facebook)
- Social Entrepreneurship (Like the above but optimizing on social value)
- Large Companies (Taking on new opportunities through entrepreneurial processes)
I believe a new form is emerging that will explode in popularity over the coming years: small teams attacking markets that we're previously unattractive due to small size. For lack of a better term, I'm going to use the term Niche Startups (NS) to describe these types of ventures.
A more formal definitely of Niche Startups:
An ad-hoc organization of passionate individuals with complimentary skills focused on building something for a niche market, limited in scope due to geography, time, or long tail interest.
There are two main components to this definition which set it aside from Blank's four archetypes: team and market. I'll explore the definition by looking at the parts.
Ad-hoc - unlike traditional startups, a NS might be much less formal in it's makeup. Members might join or leave the team as needed and there might not be formal incorporation. In many cases, the founders might keep their day jobs for the life of the organization.
Passionate Individuals - The main motivation for founders of an NS is likely passion, not monetary success. They are building something that they would love to see in the world. They likely recognize the opportunity due to a high authenticity with the niche and are probably their first customer.
The key here is niche. These are markets that are too small for traditional organizations to target and possibly too low revenue to support an independent small business running forever. It could be that there's a sufficiently large market but there is a tremendous amount of uncertainty so the expected value of the market is too small.
Despite the small market size, there is clear opportunity to create and capture real value. In the past, companies would ignore these markets and customers would miss out. These days, technology has dramatically lowered the barriers to creating products (both physical and online). In many cases, the only real cost is the entrepreneurs' time. Even that cost is diminishing as there are better frameworks and tools to rapidly prototype and iterate. With the costs so low, passionate individuals can take a long weekend and create something very cool.
A bit more on the three niches I highlighted:
Limited Geography: Products that are only of interest to a defined geography, thus a limited market. E.g. creating an app to display local transit times and routes
Limited Interest: Something targeting the long tail of hobbies or activities; this already happens a ton online.
Limited Time: Creating some type of service around a one off event or a fad. Examples might include single purpose apps around a sports event, disaster relief, or social trend (e.g. Tebowing)
This isn't completely new. The limited interest niche startups have been around for ages. There are lots of posts on HackerNews of people creating small sites that generate thousands of dollars per month; passive income projects fall into this category.
Better technology, though, has dramatically lowered the barrier to entry in terms of both cost and skill. I believe this means we'll see an explosion of Niche Startups in the near future. To tie it back to the beginning, these need not be sustainable; they don't need to last indefinitely and they don't need to support full time employees; this is radically different than Blank's four startup types.
These Niche Startups have a tremendous potential to create value for underserved niches and to generate wealth, reputation, or self actualization for the entrepreneurs building them.
I have some thoughts on the new tools and frameworks these teams will need, but I will save that for a later post.