We all know the type: A brazen young entrepreneur fully enamored with their newest venture, completely undeterred. These are the kinds of people who change the world or fail trying. I bet on them. You should too.
But now, to the fallacy. Far too many companies try to “boil the ocean”. They try to build products that are all things to all people. The idea of focusing on just one kind of user, to temper their ambitions, seems antithetical to their very nature. “Why go small, when we could be so big?”
Again undeterred, the history the world’s best companies starting in niches are not compelling. So what if Apple started with homebrew hackers? So what if Tesla started in the luxury market? So what if Facebook started exclusively at Harvard? “The rules don’t apply to me.”
Thinking the rules don’t apply to them is one of the things that makes these entrepreneurs great. But there are some rules, like gravity, that ought not to be ignored. Discerning which rules to respect and which to ignore is a critical skill.
So here’s the rational explanation for why you can’t boil the ocean and defy gravity.
It’s dangerous to set a Type A person (most entrepreneurs) up with an unwindable task because they just won’t quit, and the longer it takes, the more determined they’ll become. If you think of boiling the ocean as a feat of strength, something that with enough time, money and brainpower you could accomplish, it’s easy to let the competitive spirit hijack your behavior.
I hear so many teams and founders explain to me why they’ll be different, why they’ll be the ones who manage to boil the ocean.
“We raised $5M to make a run at the whole space”
“We have _______ from ________ which exited for $___M”
“Our tech is just so much better because _______”
I have news for you all though, it isn’t a feat of strength, it’s a mathematically impossible feat (with a few exceptions that prove the rule). I’ve got to know this the easy way (in books), but it was only after experiencing it the hard way (a few failures) that I really learned it.
Markets are complex organisms. Every consumer has a unique set of needs and preferences that define their purchasing behavior. You can think of these needs profiles as valuation functions. You offer some product, which your customer evaluates, resulting in a probability P that they buy your product or move on (1-P).
Now let’s imagine you operate a lemonade stand. You don’t know this at first, but the market is made up of several segments of buyers with several valuation functions to consider.
The Sweet Tooth — Will only buy lemonade if it contains >30g of Sugar, and costs less than $0.50. These people live in the suburbs and are hard to reach. Your booth will have to move frequently or you will need multiple rotating locations.
The Health Conscious — Will only buy lemonade if it contains <10g of Sugar, but want many refills and think these should be free. Willing to pay $2.00. These people all live downtown in a highly trafficked area. One stand could service many of them.
The Lazy — Will buy any lemonade but want it delivered to their home. Will pay $3.00+ for the privilege.
How would you build a business around serving all 3 of those customers? The Sweet Tooth business is low margin and a logistical nightmare, however, it might become sustainable if people learn to expect you at certain times or respond to auditory cues of your arrival (ice cream truck model).
The Health Conscious people are all in one place so your fixed costs may be higher and they expect a lot more of you. Real estate here is also far more expensive. Free refills indicate they’ll be sticking around so you need seating. In addition the lemonade you make for them won’t be sellable to The Sweet Tooth if/when they wander downtown. You could set up a separate, more sugary option just for them, but then you’ve doubled your costs.
The lazy business probably has the lowest fixed costs of all and they’re fairly price insensitive, but without a permanent location you’ll spend a lot of time/money marketing your lemonade delivery business to these people and won’t have the fortuitous sales lemonade stands typically rely on.
Every action you take to please one segment will inevitably alienate another. This is why many companies that “go broad” end up becoming least common denominator products that work, but never feel as good as their niche optimized counterparts. This is why enterprise software usually sucks…
“But all my customers need basically the same things with a few variations. It’d be a easy to go after them all.” ← This is a fallacy. Everyone in the above example wants lemonade but it’s the variations, not the core that determine which customers buy the product. This is true for most markets. So the above statement should be inverted. The variations above are the basis most purchasing decisions are made on, not in the shared core of any one product.
A consequence of boiling the ocean, of selling to a large base of customers, is that you can never sell the most ideal solution. True services companies perform a custom service for each customer (think architects). They can reach an ideal solution because they charge a lot more to focus on that one client’s needs. To build a product/services company at scale you need to generalize because it’s impossible to work with every customer directly after a certain point.
The best place to be is a little left of services. Narrow enough to serve a need well and charge a premium price, but broad enough that your work can be resold to many similar customers at very little additional cost to you.
Only commodities, products that solve a ubiquitous need, can go broad. And once you’re a commodity (oil, copper, storage space, etc), you can sell to everyone, but margins are low and barriers to entry are lower. Being everywhere, makes it far more likely that someone else will come along and cause you to end up nowhere. Being niche means you’ll be in fewer places, but make far more and enjoy a higher level of security. There are always tradeoffs. Pick the ones best for you.
The only way you boil the ocean, the real one or our figurative one is one layer at a time. Start with a niche and do that thing REALLY well by focussing on one set of requirements. There’s no shame is starting niche. You can’t overcome that gravity. It’s physically impossible to be all things to all people. Trying to do so will guarantee you become nothing to none.