Search for a Market Niche, and You Might Find a Crowd; For entrepreneurs, an overlooked target market may open broader doors to succ

Search for a Market Niche, and You Might Find a Crowd

By JENNA WORTHAMFEB. 8, 2014

Entrepreneurs have a term for outsized problems they want to tackle or bigger-than-life bets they want to make: “moon shots.” Examples include Google’s driverless cars and Amazon’s delivery-by-drone. Tristan Walker decided that his moon shot would be revolutionizing the skin-care and beauty-product industry for African-Americans.

To Mr. Walker, who helped build the social media darling Foursquare and held the coveted position of entrepreneur-in-residence at Andreessen Horowitz, the Silicon Valley venture capital firm, it seemed a sure bet. His time at Andreessen Horowitz had given him insight into what makes a good company and what investors are likely to support. In addition, this new business, Walker & Company, would address a problem that he and his friends encounter.

“The demographic is starved for a company that cares about it,” he said, noting that while blacks tend to be among the early adopters and consumers of social technologies, it is rare for companies to acknowledge that or to market to them directly.

Mr. Walker, like a handful of other entrepreneurs, sees a new growth trend, one that recognizes the value — and opportunity — in appealing to audiences that Silicon Valley often overlooks.

“There is opportunity in the niche,” he said. “Some of the most successful businesses started there and broadened out.”

Given his niche market, however, he did not have an easy time convincing investors. Although he eventually raised $2.4 million in venture financing, his idea was first met with a “hell of a lot of skepticism,” which he welcomed as a challenge.

“The opportunity is pretty profound,” he said.

Other entrepreneurs have found themselves targeting unlikely audiences, although not necessarily by design. When Aarthi Ramamurthy began working on a service that lets people try high-end gadgetry, like camera equipment, before buying it, she expected to attract the tech set.

“I thought it would be Google and Facebook employees with disposable income,” she said. But as it turns out, she added, it’s the “middle of the country that is very interested” in the service.

Ms. Ramamurthy’s company, Lumoid, is based in San Francisco, but much of the early adoption of its business occurred in states like Texas and Idaho. Thanks in part to the proliferation of smartphones, social media and e-commerce, and to the general Internet proficiency that is helping to change the definition of an early adopter, she has found that her service enjoys wider appeal than she had expected.

Similarly, Katrina Lake, chief executive and founder of Stitch Fix, an online styling company that sends customers boxes of clothing tailored just for them, said her service was quickly adopted by people in New York and San Francisco who wanted help finding cool clothes. But the service was received almost as well by women in Wyoming, Alabama and Minnesota — so much so that the company is considering opening a warehouse closer to those states to reduce shipping costs.

Ms. Lake said she had expected her market to be busy women in their 20s and 30s who have no time to shop but want nice clothes for brunches and engagement parties. “But it turns out that concept really resonated with moms and people who were busy with their kids and families,” she said.

Initially, the investors she approached expressed doubts about the need for another e-commerce delivery product and questioned the need for a mail-order stylist. But the unexpected traction with a broader audience changed the conversation.

“The fact that we were so mom-friendly helped quell their fears,” she said.

For now, only a slice of Silicon Valley is aware of the overlooked audiences out there. ButKartik Hosanagar, a professor of online commerce at the Wharton School of the University of Pennsylvania, said that even the smallest companies would soon have to start paying attention to so-called unconventional markets.

“There are still two Silicon Valleys,” Mr. Hosanagar said. “Young entrepreneurs in San Francisco, working at a tech firm, surrounded by the tech 1 percent, solving problems for the 1 percent. And there are companies that manage to break through that and become relevant. The Googles, Twitters and Facebooks of the world.”

The companies that break out, he said, are successful because they are adept at appealing to all users. But even those tech giants must think ever more broadly if they are to have continued success and growth. Signs suggest that these companies are trying to extend their reach and understand the complexity and diversity of their users and potential users.

In November, The Wall Street Journal reported that Twitter had hired a multicultural strategist to help advertisers target black, Hispanic and Asian-American users. Google has Project Loon, which aims to “use a global network of high-altitude balloons to connect people in rural and remote areas who have no Internet access at all.” And Facebook has worked to make its service more accessible on cellphones; its executives have expressed interest in penetrating markets in Africa, South America and Asia.

Andre Charoo, the former head of business development at Cinemagram, a start-up that lets people create and share short videos, said the service first took off among black Twitter users last year because popular rappers and celebrities were among the early adopters.

“It was a good sign that adoption would grow and we would eventually cross the chasm,” Mr. Charoo said. “Another great sign was it seemed like every teenager was using Cinemagram.”

But as the months passed, the techie crowd did not follow. In addition, the service struggled to keep up technologically, which slowed its growth. Since then, the service has been outpaced by the rival services Vine and Instagram Video.

Mr. Charoo, who is now working at a start-up called Hired, says he thinks it is crucial for companies to “be applicable to the early-adopter crowd as well as solve some problem for the average person in Middle America.”

“Starting in any of those communities is fine,” he added, but “the ones that actually make it somehow appeal to both audiences eventually.”