The Future of Innovation Will Be “Inter-niche-y”

Finding Opportunities

I recently read a blog post in which the author proclaimed that the next “iPhone moment” would be all about data, and as an extension the next “big thing” in technology would be … higher bandwidth (i.e. faster) network connections.

While most of us would probably agree with the author’s position, the generalization of his comments renders it rather uninformative as an insight. It doesn’t help the reader move their thinking forward in new ways. (For that reason, I’m not bothering to link to the post.)

Reading this, and then reflecting on another author’s post that I shared elsewhere, I was reminded again of how the nature of entrepreneurial opportunities may be fundamentally changing BECAUSE of the Internet. Now that anyone in the world has access to information and thought-leading discussions (think TED talks on YouTube), on some level. Thus at some level, ideas based on macroscopic trends may be much harder to identify uniquely. While the challenges of executing such ideas and scaling them will depend on many other factors — including the team, access to capital, timing, etc. — the fact that many people (and startups) may be chasing the same idea will make it much more challenging to end up on top.

It may be increasingly difficult, then, to find the next big thing (i.e. the “iPhone moment”) as a general platform without first defining a market niche specifically enough to be able to serve it with laser focus. In a way, it’s time to get back to the basic tenets of Crossing the Chasm and identify market opportunities one bowling-pin at a time. In practical terms, this means identifying your customer with pinpoint accuracy.

Identifying the Target Customer

In entrepreneurial pitch situations, it’s usually easy to discern which startups have truly defined their niche and understand their market well enough to have a chance at capturing a sizable share in the early days. They are certainly able to define the problem they are trying to solve and quantify the value their solution presents. However they also are able to describe the telltale characteristics of the customer organization and the specific role(s) within the organizations who are responsible for the area in which the problem exists AND have the purchasing authority — or at least significant enough standing with those who control relevant budgets — to purchase the solution.

I recall attending a pitch session for seed-stage entrepreneurs in San Francisco a few months ago that included an “expo” of table top stalls showcasing the startups who would be presenting. I approached one founder who was pitching an online learning solution geared towards professional development. I asked her who their customer would be. She responded, “Well, everyone needs professional development, so everyone is potentially our customer.” She exuded the optimism that’s often a trait of recently-graduated entrepreneurs, but she failed to understand the concept embedded in the maxim:

You can’t boil the ocean.

In other words, if you try to do too much at once, without focus, you will be doomed to fail.

Many of the “easy” big ideas related to the Internet have been implemented. (I say “easy,” but recognize the complexity and hard work needed to drive them into the success stories they became.) We have online sales (Amazon), digital payments (PayPal), online search (Google)…. the list goes on. There are clearly still opportunities for entrepreneurs to generate value with new ideas, but these will need to be very specific — “niche-y” — to small corners of business, consumer, and organizational activities that have very unique combinations of needs.

An Example: E-Learning

Consider as an example online learning. Most major universities have their own online degree and non-degree course programs that are either self-managed or delivered through partnerships with companies like Coursera or edX. These provide “traditional” education programs and some specialized variants (e.g. executive MBA programs). Another facet of the education market, however, includes professional development and training programs, for example RedVector, which delivers e-learning courses for industries including oil & gas, food & beverage, pharmaceuticals manufacturing, and a host of others.

While many educational technology companies chase opportunities in K-12 and higher education markets because of the number of institutions, the per student spending potential in corporate learning and development (L&D) is huge. Indeed, the corporate L&D market in the U.S. is reported to have been $130B in 2017, and growing at a rate projected to approach CAGR of 10% through 2022.

The Growing Importance of Niches

Admittedly my advice is not that new. For decades advisors have cautioned young entrepreneurs that they need to understand their customers in a very precise way. In the years since the debut of the smartphone and truly mobile computing, it seems like we may have lost sight of this, though, as the “big wins” (especially in the social media space) have relied on building platforms and attracting tens of millions of subscribers. But as we move forward in the future, differentiation and barriers to entry will arise from identifying those niches that serve much smaller communities of users — whether in professional or personal settings — by truly understanding their needs better than they may themselves and then delivering for them exceptional experiences that bind them to solutions and the organizations that maintain them.

So while the Internet opened up great opportunities, particularly in the last 25 years of its existence, the “big opportunity” of the future may not be big at all, but rather a collection of smaller niches, bound together with common threads that may include technologies, services approaches, or missions. The interplay of these micro-market segments will be the “inter-niche-y” face of innovation.