Breaking Into An Overcrowded Market: Is It Ever A ‘Sane’ Decision?

“If you come in late, you have to have a bloody good reason for the consumer to switch”

-Tim Ambler

The New Norm: Supply Exceeds Demand

We’re all scre*ed.

Yes, even you. Your ex-boy/girlfriend was right!

In case you’re wondering, I am of course talking about startups…

Whaaat?

Well, kidding-aside, here’s the thing – despite in which industry you’re about to enter (as a new startupper) the story is pretty much always the same:

The supply of products exceeds demand.

Put differently, unless you’re going after a brand new market category (which statistically speaking is more the exception than the rule) you’ll have to face an overcrowded market.

Yep, a market packed, big time, with competition!

And for some, that alone is kind of deal-breaker…

Why I hear you ask?

Ok, let’s start digging.

Is Entering A Crowded Market Worth The Gamble? NO

So, why many suggest entering an over-saturated industry should be a non-option?

A couple of reasons:

Reason #1: It makes it much harder to make it

The underlying assumption here is straightforward.

Unless you have a completely unique good (or alternatively something which is WAY BETTER than what is currently out there) attracting people with the will to even give you a chance becomes almost a mission impossible due to the myriad of rival offers.

The bad news?

You probably don’t have that product.

Or at least that what the claim is!

And for driving that point home, the advocates of this school of thought, back-up their claim with a bunch of, wait for it…

…startup failure rates statistics.

Love them or loathe them, are here ‘to tell the truth’.

I know, sad isn’t it?

Reason #2: It makes it much more expensive to break through the noise

That’s right – if shrinking (success) odds were not bad enough the increased marketing costs come to make things even more miserable.

And this is only natural!

Why is that?

It’s simple – one of the biggest challenges for new products is attracting the attention of the right people at the right time and…

with a market packed with competing products, offers, marketing messages/claims breaking through the noise becomes:

WAY. MUCH. MORE. EXPENSIVE.

Yep, irrespective which marketing strategy you use (organic, paid, inbound, social, etc.) you would still be competing – with a sh*t load of competitors for the attention of the very same crowd.

The moral of the story according to them in a sentence?

Cutting through the clutter in our over-communicated society is easier said done under normal conditions let alone when the market is oversaturated.

Reason #3: There will be “less meat at the bones”

And ‘surprise, surprise’, as a result of all these negative side-effects of jumping in an overcrowded market the profit margin up for grab will be much smaller.

As Jeff Thermond, a proponent of this line of thinking, explains in an article of him on Forbes:       

When buyers have a lot of undifferentiated choices, the price they are willing to pay drops… If the structure of the market says prices are well below what a less crowded market would have supported, then the ceiling of what any given vendor can expect in sales gets lowered precipitously.”

Yep, supply and demand baby!

So, time for ditching oversaturated markets?

NO WAY!

The Case for Entering Crowded Markets

You did read that correctly…

Entering a crowded market for quite a lot of ‘startup insiders’ is very much considered a savvy business decision!

The reasoning?

Well, according to them it mainly boils down to these 3:

Factor #1: Saturation = High Demand

I know, pretty obvious.

After all, it doesn’t take a rocket scientist to see why an overcrowded market is a clear sign of strong buyer demand.

And that’s why for many, the notion that you shouldn’t dip your toes in an overcrowded market is rather idiotic.

As Marc Andreessen famously said once, Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that don’t exist, don’t care how smart you are.”

Hence, by jumping in a market with proven demand you at least know you won’t try to square the circle.

Reason #2: The more mature an industry is, the more established the market needs are

How come?

Well, if you think about it in new industries, in general, peoples’ needs are vaguely defined (or even formed at the very beginning).

Take tablet computers for example.

When got introduced into the market in 2001 there was a lot of speculation about how a customer will react, what features will value most, how much will be willing to spend, what will be the impact on other mobile devices and so on and so forth.

Could someone predict all of these in advance? Or maybe just a couple months post-introduction?

Not really. 

Which that alone creates a lot of uncertainty because it forces entrepreneurs to base their business decisions based on few facts and many assumptions.

And unlike the big companies bootstrapped entrepreneurs don’t have the big bucks to afford take a gamble…

On the contrary, in mature industries, there are many more knowns than unknowns when it comes to customers’ needs, spending patterns, and priorities which naturally brings much more clarity.

Reason #3: You can still rise above the noise and get an edge

But how is that possible?

No guesses here…

By de-commoditising the product and carving your own vertical, you can claim your piece of the pie.

Yep, just because you will encounter many competing products out there doesn’t mean you’ll have to foolishly commit suicide and fell into the sameness trap.

And that not even news – today’s startups are doing exactly that successfully every day.

A couple such examples?

Here you go:

Referral Candy (referral marketing tool for e-commerce sites)  

Fetcher (profit analytics tool for Amazon sellers)

Makers Academy (computer programming bootcamp for aspiring web developers)

Writers Access (freelancing platform for content writers)

Adespresso (Facebook ads optimisation platform)

And the list goes on…

***

My take an all this?

OM: The Future of Today, Tomorrow and the Day After Tomorrow

That’s quite a bold statement you might very well say.

So, why I think that way?

It’s simple – because that’s has been the case FOREVER.

Yes my friends – completely new industries that are emerging almost out of nowhere happen from time to time but statistically speaking are more the exception than the rule.

Just look around you – how many of the products you see are coming from established industries and how many not?

As I guessed…

And you know something else – just because an industry is mature doesn’t mean is not evolving.

Take commerce for example.

You see 100s of new entrants per day (primary from online players), ground-break innovations, unprecedented technological efficiencies but the industry is still the same. 

Having said that, of course from time to time you see a completely new industry emerging almost out of nowhere

My point in a nutsell?

Hype-aside, breaking into an overcrowded market, in my opinion, is not just a sane decision, but especially for first-time entrepreneurs THE BEST WAY TO MOVE FORWARD.

Because, as Dan Norris famously said one:

“On your first venture do NOT play the visionary”!

And with that said let’s conclude this post with today’s key takeaways…

Key Takeaways

– Saturation = High Demand

– The more mature an industry is, the more established the market needs are

– Market matters most; neither a stellar team nor fantastic product will redeem a bad market

***

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Vertical Startup: A business type for down to earth, aspiring bootstrapped entrepreneurs for turning a late market entry into an advantage, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

“The big problem with avoiding competition is that you are also avoiding customers.”

– Erik Sink

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