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

10 points by JonathanWCurd ↗ HN
We have a dilemma.

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.

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).

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.

What project do you think we should pursue?

Is it possible to get funding for a smaller market product?

15 comments

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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.

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.

radu_floricica
Bootstrap the safe one, and with the profits play with risky ideas.
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.
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).
karanbhangui
Bag the rabbit you have the highest chance of catching.