Why Niching Down Can Elevate Tech Startups to New Revenue Heights

Niching Down

Founders of fast-growing tech startups sometimes struggle with where to focus their offering. Is it better to cast a wide net to a large general market or to “niche down” and create more targeted products that will attract buyers in a specific niche?

In many cases, the products or services that inspired a startup can have broad application across many industries, so it may be tempting to resist niching down your target market. But in today’s competitive software landscape, one good way to grow your business is to tighten your focus and niche down.

Niching down is an important and valuable strategy for tech startups and can elevate a business to new heights. Take for instance the story of BombBomb, a Lighter Capital client that helps customers use video to personalize their email communications — they experienced incredible success by aggressively niching down into the real estate space.

In this article, we spotlight how niching down helped BombBomb accelerate revenue growth. We’ll also explain why this strategy is beneficial for scaling your startup and how it helps businesses better serve their customers.

Wow your customers, then charge more

Wow your customers

“Do you want to go make a CRM that anyone could use, or do you want to make a CRM for dentists?” says BJ Lackland, Lighter Capital’s CEO. “Today you definitely want to make a CRM for dentists. And the niche-ier the better. If you focus on solving particular problems that dentists have, you won’t face competition.”

Delighting that core group of customers by satisfying their specific needs allows you to easily overcome two of the major hurdles startups struggle with: How to make customers love you and how to justify competitive pricing.

If you aim for a niche market that no one is serving very well, you will easily wow your customers and have the flexibility to price your product how you want.

“The more niche you are, the more pricing power you have,” says Lackland.

Get close to your niche customers

Niche customers

That pricing power isn’t simply a function of having your captive audience over a barrel. It’s also about the fact that, when you niche down, you can become intimately familiar with your target market and learn to meet their needs in better and more comprehensive ways, particularly as you learn about the challenges they struggle with.

BombBomb found this to be true in the real estate space.

We caught up with Ethan Beute, BombBomb’s VP of Marketing, to learn how niching down helped the company better understand their niche customers and provide a service they really want, and ultimately generate more revenue.

While BombBomb’s service can apply to most any industry, and their customers come from a wide range of fields, they aggressively niched down into real estate fairly early on after realtors started vigorously embracing their offering.

Their first real-estate specific offering was double the price of the core offering, because it included quadruple the number of features. BombBomb developed the new realty-friendly features after becoming intimately familiar with the needs of these niche customers. Ethan Beute dove into this further, and said:

“I don’t say, ‘Hey if you specialize you can jack your prices.’ [Instead] I say, ‘If you specialize in a niche, you understand these people better and you can do additions or modifications to your core offering specifically to solve their problems.’ If you try to be all things to all people you’re never going to understand them well enough to give them something they really need and want.”

Another way to integrate into your chosen niche and generate even more revenue is to pursue integrations with partner companies that can leverage the helpfulness of your service. BombBomb integrates with many of the most popular real estate CRMs and platforms, as well as Gmail, Outlook, Salesforce, and other prominent business services. Beute emphasized:

“Now that they can use our product directly in their CRM, they’re never going to leave.”

Branch out to other niches

Niches

Once you’ve learned what it takes to serve a niche at depth, you have a mental model to follow in branching out from there into other adjacent or related niches. If you make a CRM that’s good for dentists, you can eventually branch into orthodontists and then into other small clinics, like veterinarians. You can aim to lock in a series of related markets.

After you’ve reached a certain depth within your core niche, the best way to transition to others is to continue focusing on the initial niche while using an increasing amount of bandwidth to grow your outreach to other types of users. Beute told us:

“We learned so much by going deep niche in real estate that is now transferable to other businesses. The idea is that you’ve organized yourself around the niche, it’s continuing to grow and you’re continuing to serve it, but the business has enough potential elsewhere that the business’ overall growth is going to outpace the growth within the niche.”

Aim for sustained, steady growth

Aim for sustained growth

Those who worry that focusing on a relatively small segment of customers will stunt their company’s potential growth will need to think strategically about the competition they face in general, their prospects for capturing a robust or lucrative niche, their goals for business growth, and various other factors.

Niching down may mean you can’t become a unicorn, but that’s okay. Remember that you are unlikely to become a unicorn even if you don’t focus on a niche. Christopher Janz, partner at Point Nine Capital, wrote:

“Even if your market is large in principle, keeping growth up after you’ve picked the low-hanging fruits and reached a few million dollars in ARR will become increasingly difficult.”

On the other hand, serving a niche while maintaining your appeal to many industries and keeping an eye on your ability to bridge into nearby niches is a good recipe for sustained, steady growth.

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