In the late 2000s, Justin.tv was gaining traction as a lifecasting and a live streaming platform. What originally was a way for Justin Kan to stream his life transformed into a business. But it had stiff competition from Ustream, Livestream, and other platforms.
All three companies would eventually be acquired. Only one--Justin.tv--would reach the magical billion-dollar unicorn mark. In 2011, the company's leadership saw unique traction for live streaming in the gaming community and chose to spin out gaming into its own site, Twitch.tv.
As we now know, Twitch took off like a rocket ship. By 2013, it had 45 million viewers watching 12 billion minutes of content monthly. By early 2014, Justin.tv rebranded as Twitch Interactive, and by the end of 2014, Amazon shelled out $970 million in cash to win a bidding war with Google.
Venture capitalists love to tell founders to focus. Don't try to do everything--be great at just one thing. They often forget to mention that it isn't good enough to be great at something--you have to only cater to one market or industry. I've seen countless startups die due to lack of industry focus during my years as a journalist, investor, and entrepreneur. It's easy to think you're focused enough, or that you're an exception to the rule.
My company, Octane AI, faced the same decision. We were originally a chatbot creation company for every industry. But we couldn't build for every use case (politicians, celebrities, small businesses, etc.), so we focused on one: e-commerce. When we focused on being the best bot/marketing automation platform for e-commerce, our growth skyrocketed.
Hyper-verticalization is the secret sauce of early startup success. If you're an early-stage company looking for your product-market fit, I have some words of wisdom for you:
1. Always verticalize a level deeper than you think you need to go.
"Enterprise" and "big brands" are not verticals. The needs of an insurance company is not the same as the needs of a retailer. And the needs of a target customer who generate $1 million per year are very different than one generating $100 million per year.
Pick a specific industry vertical and customer profile to target first. Mark Zuckerberg didn't start with the entire world--he started with college students at a handful of top-tier universities.
2. Verticalize your vertical.
Divide your vertical into sub-verticals. E-commerce, for example, can be divided up by the platforms our customers use: Shopify, Demandware, Magento, and more. Startups building developer tools can verticalize based on programming languages, infrastructure setup, the other developer tools they use, and more.
Ask yourself: What platforms do my customers use? What are the categories of products those platforms sell? Don't just go after all of "beauty"--start with lipstick, toner, or facial cream and then expand.
3. Win your vertical before expanding.
Salesforce didn't expand until it dominated the sales automation market. Amazon conquered books before it conquered retail. Facebook started with a single college. None of these companies moved on until they were the standard-bearers of their verticals.
Before moving to another vertical, ask yourself the following questions: "How many more customers are there in my current vertical? How dominant is my company's position in our vertical? And what will happen if I stop 100 percent focusing on this vertical?
I can't name the thousands of companies that expanded too soon, because they're all
dead. Don't become a footnote of the startup deadpool.
4. Turn down customers.
A high-touch customer that does not fit your vertical focus may seem like a chance to increase revenue and learn about a new market, but I promise you that you'll just end up splitting your product roadmap and losing valuable development hours.
I'm not saying don't take on that big contract--I'm saying that building features that only one customer can use doesn't help you grow. Here's a good rule of thumb: If a new feature request can't benefit more than half of your existing customer base, don't build it.
5. Be a specialist.
It can be hard to focus on a subset of a subset of an industry when there are so many opportunities to chase. But none of your customers want to work with a generalist--they want specialists catered to their needs.
Create marketing and sales materials that show you are the expert in your vertical. Don't say you can do everything for everyone--say you do amazing things for just one vertical. Really focus your messaging and marketing to caterer to the needs of just one vertical, and don't worry about marketing to the others.
If you follow these rules, you will see your marketing and sales take off. Be patient and win one vertical at a time--you will be rewarded in the long run.