

Ask HN: Small market product vs Big market product, Which should we attack? - JonathanWCurd

We have a dilemma.<p>We have come up with two product ideas in the last few months. We have done research on both markets and we have had great response to both ideas. Here is where things get tricky.<p>On one hand we have a product idea that definitely solves a problem for a small industry. We have spoken with 10 or so players in this industry and they would all be willing to pay for our software (they are hungry for a solution). This would be a very stable income producing product / company that could go on for years innovating in this industry but its growth potential would be somewhat capped. I can see it getting to 5+ million a year in revenue with 60% profit margins but then it becomes much more difficult to grow. Getting to 10 million would be a short term ceiling (Pending some other added revenue sources).<p>On the other we have an idea for a consumer product that has a huge market but a lot less predictability. Obviously the market is much bigger; but there are other players, the price points are much smaller, and there will be continuous competition because of potential for growth and future payouts.<p>What project do you think we should pursue?<p>Is it possible to get funding for a smaller market product?
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hajrice
>> On one hand we have a product idea that definitely solves a problem for a
small industry. We have spoken with 10 or so players in this industry and they
would all be willing to pay for our software (they are hungry for a solution).
This would be a very stable income producing product / company that could go
on for years innovating in this industry but its growth potential would be
somewhat capped. I can see it getting to 5+ million a year in revenue with 60%
profit margins but then it becomes much more difficult to grow. Getting to 10
million would be a short term ceiling (Pending some other added revenue
sources).

I'd go with that one. Build the MVP(my rule of thumb is, if you cant get it
out the door and into customers hands within 90days, move on) and charge them.
You'll soon realize that your assumptions were right/wrong about that
industry.

That being said, I'd always go for B2B rather than B2C.

~~~
JonathanWCurd
We have done past work for some of the players in the industry so we have good
connections / a solid network within the industry so I have no doubt we can
get the product in the door. The questions is are we limiting ourselves by
pursuing a product that has only a small market instead of aiming higher /
bigger.

Once we have an MVP and can show traction, would we be able to find investors
so that we can grow rapidly and capitalize or is this market to small.

~~~
codeslush
Small, niche markets are nice. You won't have the same competition and can
essentially own it.

Why seek investment? You've got the knowledge, the connections - boot strap
it? Unless I'm missing something that you haven't described.

Do the more sure thing and have it fund your other ideas later. Besides, it
sounds like you have tremendous domain experience in the niche market and that
would also increase your odds at success.

To me, seems like a no-brainer. But you may have left out some crucial
details...like: It would take us 2 years and 10 engineers to build the b2b
solution or we can only succeed if we are able to get funding for reasons x,
y, z. Or something like that.

I would love to have a product in niche market capable of generating 5M to 10M
with 60% profit margin year over year.

~~~
JonathanWCurd
It does require a small development cycle ~6 months and more than
bootstrapping in terms of resources but I am willing to fund the development
costs knowing the potential and having the inside knowledge of the industry
and their hunger for a real solution.

My biggest concern is am I playing it safe, on one hand, I know we can make
money with the niche product and we are already active in the industry so it
might be foolish to pass up the opportunity, but I would say we are more
passionate about the bigger possibilities for the consumer space.

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MaysonL
One possibility for funding the small market app would be customer funding
from the start: talk to some of the people you know in the industry and see if
they would prepay (possibly in return for some sort of discount, or free until
the product leaves beta) for a year's service or so.

~~~
JonathanWCurd
We have approached this as a possibility (and we have interest from multiple
players) I just worry that we might alienate other potential customers if they
knew their competition was financially involved. Does anyone have experience
dealing with those concerns?

~~~
JonathanWCurd
Would it be unethical to pre-sell the software, sort of like what Oracle did
in the beginning.

We would be upfront about the estimated delivery date and current status.

~~~
codeslush
It's not unethical at all and it's actually something that is very common. Why
would you be concerned about the ethics of it? You're getting some money to
build something they want and they're presumably getting some sort of
discount, favorable licensing terms, etc...

To your earlier comment - I also don't think you should be worried about other
possible customers being concerned about a "financial investment" from your
initial customers. They ARE NOT partners - they're paying for a product just
like any other customer. Instead, they're getting a discount for taking on a
risk.

~~~
JonathanWCurd
In terms of ethics, I've just heard horror stories of people selling
"vaporware" and don't want to be lumped into that category.

As for point two that makes great sense.

Thanks for all your input I appreciate it.

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notahacker
If you earn >$1 million per year in profit with the niche product, would you
regret not going for the hypothetical millions more you might have earned with
the consumer product?

(Of course, the need to part with equity for external investment and lower
margins might mean a successful consumer product company ends up returning
less cash to the founders than a much smaller bootstrapped b2b company anyway)

~~~
JonathanWCurd
The b2b product has a more defined route to revenue / profit but its market is
capped. I wouldn't complain about >$1 million in profit but my personal goal
is to make a bigger impact (doesn't have to be now, but if I wait will I
squander my chance).

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imx
Go with the smaller/safer one first and roll it out asap (2-6 months), then
move on to the higher risk/reward venture. This approach will help you
negotiate better terms with vc backers. Otherwise, if you start out with the
"bigger" venture first and fail, then it might be too late to go with the
smaller venture idea since the void in the niche can be filled by someone else
by that time...

~~~
JonathanWCurd
The b2b product would really require a commitment to run and operate it to
make it work out for the best. Its not really a build it, release it, and move
on kind of thing. That being said I guess I could get it up and running and
hire in the required people to operate it and run it while I migrate onwards
and upwards.

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radu_floricica
Bootstrap the safe one, and with the profits play with risky ideas.

------
karanbhangui
Bag the rabbit you have the highest chance of catching.

