One of the root causes of failures among most startup is a lack of product-market fit. As a budding entrepreneur, you might have a promising vision but if you are unable to nail the product-market fit you'll be kicked back into oblivion, like so many other startups. However, product-market fit unlike several aspects of a startup, can be analyzed and researched. It has more to do with science than art.
One of the measures you can employ is to target a specific niche and segmentation. By taking this path, you'll improve your chances of initial traction, following which there you'll have better odds at success and expansion will be a cakewalk.
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Of course, your ultimate goal should be to create a product or service that caters to as large a market as possible, but that shouldn't be your starting point. Your unparalleled focus on a particular niche or segment will allow your marketing and product to test the water and build a steady customer base. This kind of growth and expansion will be the lever for your next tier of growth.
Let's say you want to build a web app for a popular e-commerce website's merchants. The sellers of that e-commerce website might appear to be a well-defined target audience, but if that's how you define your target market, you'll set yourself up for failure. You have to keep segregating the market, until there is no other meaningful differentiation to be made.
Make the first distinction in volume. There will be sellers with significant volume and sellers that do very low volume. Your product has to be unique enough to appeal to one group over another.
Make the next distinction by the type of merchant. The e-commerce website you are targeting is bound to be home to merchants that are manufacturers and merchants that are specifically resellers. Manufacturers are more likely to have deep inventory whereas resellers are more likely to have shallow inventory.
The next distinction can be distribution. Your selected e-commerce website's merchants can choose to ship from their own warehouses or they can use the website's warehouses to store their items and ship from there.
These kind of distinctions are never-ending. If you ignore these distinctions and cast your net too wide, it will be incredibly difficult for you to find a clear position in the market place. Instead, go after a well defined subset of customers and build specific features for their problems. Once you achieve traction in one niche, move to adjacent verticals.
If you want to achieve a product-market fit, start with a super niche target market and grow from there. However, it is easier said than done. You need to study your market and know its various sub-categories like the back of your hand. Only then will you be able to select the niche you want to cater to.