Strategy 2 — Niches & finding your segment

Summary: How to position in a niche by finding the segment, user innovation, or attribute that’s unique to you, with B2B SaaS examples.

Find it — in a nutshell:

• Strategy: Find your unique value by looking down for a specific segment to exploit, be that a vertical, job-to-be-done, user innovation, attribute, or a niche or ‘best customer’ ICP.
• Attention: Active left-brain (looking down).
• Action: Find it — either do the analysis to find the niche yourself or do the work to see what your most innovative customers are doing.
• Position: Your tool or innovation is a revelation to a defined set of folks who really need it and very quickly get it.

You don’t have to deliberately build your positioning around a wave to build an incredible B2B startup — we’re all riding the digital transformation wave after all, and sometimes you can build a great startup by building — or stumbling across — the right tool for the right people at the right time.

This is the world of more left-brain positioning by analysis — finding who you’re the best match for and then zeroing in on those best-fit customers.

But why do this? Why not just sell to whoever wants to buy?

There’s some crucial logic at work here. Because you’re small and no one knows who you are, you can’t afford to pay for every marketing touch for every sale you want to make. Instead, you need some degree of word of mouth, or at least reference-ability.

That is, you need folks telling other like-minded folks about your great innovation. And the only way they can do that is if they’re in the same proverbial room (industry, role, geographic location, etc.) as the people you need them to talk to.

What’s more, when your go-to-market strategy relies on sales, and therefore reference customers, this niche approach is even more important. When company X comes to buy, and they see that company Y who is just like them is already a customer, they’re going to feel more confident taking a risk on your (mostly unproven and still rough-around-the-edges) new technology.

One of the best founders to pull this off and document the process was Nathan Barry of ConvertKit. He bootstrapped an email marketing startup in the face of overwhelming competition from Mailchimp et al. by being laser-focused on bloggers, doing direct outreach and sales to them, hand-holding them through migration, and picking off reference customers in each micro niche one at a time to build his startup brick by brick. Eventually, the flywheel kicked in, word of mouth started, and the company now generates tens of millions in revenue every year, fully bootstrapped.

At the venture-backed end of the SaaS spectrum, ‘vertical SaaS’ has become a popular strategy of sorts because it doubles down on this build-momentum-in-a-niche approach. However, the “niche” in this approach is often an entire industry. Famously, Veeva, who thought they would start in the pharmaceutical niche before moving on to a bigger niche, found it so profitable that they ended up building a public, ~$30B business in their original vertical and now position themselves as “The Industry Cloud for Life Sciences.”

Either way, these examples highlight the fundamental mechanics of niche positioning. It enables early sales, and it’s what gets the flywheel going.

There are, broadly speaking, two ways to find your niche:

1. Pick your niche/vertical upfront: You identify a problem, build a tool, and take a very deliberate, founder-led sales approach to selling to and onboarding customers by hand, one by one, building with them as you grow. Alex Kracov, the founder of Dock, is another great example of someone doing this and documenting the process (which I also cover in Positioning Playbook).
2. Pick your best customers once in the market: Plenty of folks build something, start selling it, and are generally happy to sell to whoever’s buying. If this works, great, but in the long run, this often fails to generate that all-important niche momentum. The word-of-mouth fire never gets lit, and growth never really takes off. In this case, you need to analyze your customer base, find your best customers, and try to build momentum that way.

To give you a sense of just how rigorous the pick-your-niche approach can be, some leadership teams will forensically analyze dozens of potential niches and adjacencies to see what segment appears the most attractive.

Others just YOLO it and follow their nose.

And others study their best customers. This approach is something that the queen of B2B positioning, April Dunford (long may she reign), strongly advocates. Even better, Dunford gives us a handy methodology for doing this kind of positioning.

Positioning exists, let’s remember, to help you position your product closer to demand (customer value) and away from competitors (uniqueness and differentiation).

To paraphrase Dunford’s approach, we find a niche position by:

1. Identifying competitive alternatives in the Jobs to be Done sense (i.e., manual processes, spreadsheets, etc., not just peer competitors).
2. Identifying what makes you unique in terms of attributes and value you offer.
3. Figuring out who cares a lot about that value, i.e., your best customers.

And then we sell just to those people!

That is, you calibrate what makes you unique (differentiation) relative to all alternate options with what makes you most valuable (demand) for a specific set of customers, and you build your ideal customer profile (ICP) where those things intersect.

Or, if I can simplify further, we might look for existing customers where:

• Your differentiation + their demand = outsized ICP value

Or, as SaaS legend David Kellogg says, “While the ICP starts as an aspiration, over time it turns into a regression.” That requires you do that kind of regression analysis, however. You also need to build a GTM motion to match (as we’ve discussed), and this works best when you’re doing segment-and-sell because you now know who you need to go and sell to.

Again, strategy is choice, and choosing your target customer to position around is one of the most important choices you can make.

That sounds very neat and orderly, but sometimes niche positioning is more obvious on the one hand, or fuzzy on the other:

• Obvious: It slaps you in the face thanks to customers innovating with your product, essentially finding your niche position for you.
• Fuzzy: A niche isn’t so clear-cut, and you need to camp out on a specific attribute in the face of intense market competition.

Let’s discuss both briefly.

Obvious — user innovators

Sometimes very obvious positioning opportunities present themselves when the current way just isn’t working. Perhaps you’re fortunate enough to spot a handful of users — or even just one — doing something innovative with your product, and the positioning lightbulb goes off.

This is what happened for Loom as we’ll see below. This is the world of ‘user innovation’ — a surprisingly well-studied area — and it’s gold for positioning.

It turns out R&D is very expensive for companies because trial and error is slow. A company might build a product and take a shot at positioning it, but that’s only one trial, one N=1 experiment, if you like.

But if you put that product in the hands of dozens, hundreds, or thousands of customers, suddenly you have an infinitely faster R&D trial-and-error flywheel. Of course, there has to be some value there to begin with, but even companies like Apple rely on this approach to find the best use cases for their products like Apple Watch and Apple Vision Pro.

This phenomenon has been studied for decades by Professor Eric von Hippel — again, it’s amazing what research science has established that we occasionally rediscover in tech (which, for me, came via Professor Ethan Mollick, who you may have seen discussing AI on Twitter/X.)

This kind of user innovation can be an absolute no-brainer to go after, especially if the initial positioning flops hard.

Fuzzy — unique attributes

Other times, however, in competitive markets, positioning opportunities aren’t so clear-cut, but you can still find an attribute to position around, something to be ‘more about’ than the competition.

A client of mine, for example, spotted a glaring gap in a customer workflow while on-site with the customer, built automation functionality to close that gap, and positioned around that. We’ll explore that a little more in our LMS example below.

This is where a lot of folks end up carving out some unique space, perhaps by:

• Price & segment: That is, targeting the low or high end of the market.
• Point of view & UX: A specific point-of-view on the market, perhaps with a UX to match.
• Wedge attributes: Usually thanks to feature areas they’ve invested in, especially when leaning hard into a point of view, perhaps around automation, collaboration, intelligence, and so on.
• Niche category: A narrow category they’ve created — for instance, they’re a particular kind of CRM or database. They’re not creating an all-new category — everyone knows it’s still a CRM or a database — but they’ve found a new, innovative niche and a fresh way to map the parent category.

Not niching/too much niche

There are a few typical failure states for niche positioning strategy:

1. Not actually niching: Some folks do positioning exercises, feel good about it, and then… not much happens. That’s because they didn’t drill down hard enough to focus on a niche (and particular problem) where they could innovate and generate that all-important momentum. That is, they didn’t actually choose a meaningful position; they just kept drifting along with a slight tweak here or there. (That new header on the homepage ain’t going to cut it!)
2. Not getting out of your niche: You sell to early adopters, and they love it. Great! Then you try to cross over to the mainstream and discover there’s a chasm there waiting to gobble you up. Not so great! This is the premise of 1991’s Crossing the Chasm, which OG smartwatch maker Pebble had the misfortune of experiencing first-hand in the mid-2010s. They made a watch for nerds, tried to go mainstream, but the mainstream product flopped, and they went bankrupt. Breaking out of an early-adopter niche can be brutal.
3. Staying too niche: But break out you must, and, eventually, contra the saying, you can be all things to all people, or at least most things to most people! That’s literally ‘how brands grow’ (to use the name of the book), and it’s why Salesforce, the granddaddy of SaaS, isn’t a plucky PLG app anymore but a giant suite of products and sub-brands. If you stay in your niche forever, the world might pass you by. And ConvertKit, for example, is now riding the ‘creator economy’ wave — even as a bootstrapped company, they didn’t stay niche forever.

This is where positioning and the art of strategy intersect. You’ve got to know where you are in terms of your growth and market penetration. Positioning evolves over time, and this is where your own right-brain and left-brain attention comes into play.

Your right-brain attention is great for studying your own change-over-time narrative, how the market is unfolding, and how you’re making progress toward your greater vision.

Meanwhile, your left-brain laser-beam attention is great for looking down at where your positioning needs to be today, right now, for the buyers who want to buy today and not in six months or a year from now.

That’s how you make great strategic choices about your positioning.

That’s how you find it.

Niche positioning — examples

Positioning in a niche can happen in a variety of ways. For example, let’s revisit Qualtrics, whom we touched on when discussing wave riding, along with Loom and my LMS client:

• Qualtrics — niche ICP: Qualtrics has been sold and acquired a couple of times for billions of dollars, but they bootstrapped for much of their existence, initially selling just to marketing professors because one of the founders, Scott Smith, was a marketing professor, and they couldn’t sell to anyone else. But that worked, and eventually, they could sell to business schools, then universities, then finally the mainstream corporate market.
• Loom — user innovation: Loom, the async video software service, originally started as a user testing platform, where their customers could record user tests. But then the team noticed one user doing something unexpected — they recorded a short video of themselves explaining the results of a test to share with their team. That collaboration angle turned out to be a much more promising use case, so the team pivoted, positioned around async video, and was eventually acquired by Atlassian for just shy of $1B.
• LMS provider — owned attribute: I helped a past client of mine clarify their positioning around automation. They, along with hundreds of other companies, were in the highly competitive LMS (Learning Management System) space. Other companies positioned around micro-learning, AI-powered learning, collaborative learning, and more. Ultimately, my client was acquired by one of their well-funded competitors. Most startup exits are acquisitions, and having a clear attribute you ‘own’ (and have built out) can help make your value clear to both current prospects and future acquirers.

And, as mentioned, there’s also the world of vertical SaaS where, similar to Veeva, construction management SaaS Procore has carved out a ~$10B market cap in the construction industry, giving new meaning to the phrase “riches in niches.”

Next, we’ll look at our third strategy, own it.

Vision questions

• What unique value have you found in the segment you’re targeting? How strong is your vision in terms of being able to look down into the workflows and struggles of the folks in that segment?
• How did you originally see your unique value? Was it through your own lived experience, observation of your customers’ problems (like my LMS client who was on-site with a customer), or observation of your customers’ innovations (like Loom and video sharing)?
• What niche (if any) are you targeting in terms of a particular role or vertical? Has that made sales easier? Could it make sales easier?
• What attribute (if any) are you trying to own so you can be ‘more about’ something than your competitors?
• What role does your unique value play in your current sales narrative or messaging? If you surveyed customers, would they agree that’s why they bought you?

First published: September 2024 · Last updated: November 11, 2024