The easiest path to growth and profit is up, and the most deadly attacks come from below
This quote from Clayton M. Christensen’s The Innovator’s Dilemma perfectly encapsulates how startups can find success over incumbents in their markets. Incumbents often look left, right, and above – yet sometimes they’re most vulnerable from below. The tiny market niches and startups who play there are often too small to capture an incumbent’s attention. However, it’s these small startups that begin in the long tail that have the capacity to disrupt over time.
For example, Hootsuite started as a free Twitter tool for small/medium business and casual users; it’s now a social media dashboard serving Fortune 500 companies like Seagate and Pepsico. Zendesk initially focused on tech startups and now has more than 30,000 clients including global giants like Disney and Vodafone.
For startups, the message is that you should develop your business in the long tail, focusing on those customers in your market that the incumbents don’t care about. For example, Clio, a company in my portfolio, first focused on providing legal practice management for solo lawyers and very small firms (today, Clio is now serving firms with over 50 lawyers).
Narrowing your focus to a smaller piece of the pie offers several advantages. First, customers in the long tail usually require a smaller feature set which means that you can get a MVP into the market faster. Second, you have the unique opportunity to tailor your solution for a few particular use cases… and thus make a superior solution for a certain segment of the market (one that’s much more useful than a one-size-fits-all tool from an incumbent). This will enable you to build a community of loyal, passionate customers.
In addition, by focusing on selling to smaller companies in the long tail, you’ll benefit from shorter sales cycles. Smaller businesses are far more agile when it comes to purchasing and deploying a new technology than Fortune 500 companies. It would have been a much different story had Clio first tried selling a cloud-based management tool to large legal firms (which are notoriously slow to adopt anything new).
As you build out your product and develop a brand in the long tail, your reputation in the market will spread. Enterprise SaaS products can be viral, as companies are tightly connected to dozens/hundreds/thousands of suppliers, customers, and partners. High utility products are shared, enabling you to extend from the long tail to win larger accounts and move up.