4 reasons it’s nice to be niche

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“More organizations die of indigestion than starvation.”  -David Packard
When you take on too much, you lose out on the efficiency that comes from focus. The lesson isn’t a new one, but it bears repeating—here are 4 reasons to specialize.

1)     More compelling product

Product focus is critical for small and growing companies because, almost invariably, they’re going up against larger, better-resourced rivals. When you don’t have the resources to be everything to everyone, having a narrower product strategy helps ensure that your product is fantastic for someone.

Picking a niche allows you to zero in on your segment’s needs, and to outperform larger competitors in two important ways. You can offer the right features for a given customer set to beat out a gappy generalist product (or fill a totally unmet need). You can also offer intuitive simplicity as an alternative to a product that has all the bells and whistles, but is painfully complex or expensive.

2)     Lower customer acquisition costs

Marketing and selling a product, particularly if you’re evangelizing a new space, is an uphill battle. Geoffrey Moore’s “Crossing the Chasm” advocates that new technology products start with a focused beachhead market for exactly this reason. Focusing on a smaller target market limits the number of people you need to inform and convince. Focus permits you to spread the message less widely, and speeds the time it takes to go from an unknown to a no-brainer.

Once your product becomes an accepted standard with name recognition and relevant reference customers, selling it gets easier and less expensive. Rather than trying to enter multiple sub-markets simultaneously, aim to dominate one first. Define a group of customers that read the same publications, attend the same conferences, and most importantly, talk to each other. Continue reading “4 reasons it’s nice to be niche”

“Would you rather” for SaaS nerds

In an ideal recurring revenue company, you’d have enormous LTV:CAC because sales and marketing costs would be small relative to ACV and there would be no churn. But if you had to prioritize one, would you rather have a long customer lifetime, or a quick payback of acquisition costs?

LTV:CAC is effectively a measure of how much a customer is worth (lifetime value) relative to how much they cost to get (acquisition cost). With a little rearranging, it can be restated in terms of lifetime and payback period.

This tradeoff can be visualized as a matrix of different lifetime/payback combinations that achieve given LTV:CAC values. Because it’s more familiar, I’ve restated lifetime in terms of its inverse, churn.

Continue reading ““Would you rather” for SaaS nerds”