How startups grow in fragmented niches by Dru Riley from

Dru publishes, a report on trends shaping the tech ecosystem. In one of his latest reports (Feb 2021), he focused on what he calls competitor risk. Here are my key takeaways from that report. At the end of this post I have added the video where he presents this report in greater detail as a podcast.

1/ Competitor vs “new market creation” risk

When you’re going after markets that have established players, you are taking competitor risk. If this isn’t your north star, you may end up realizing that you can’t build a business in that new market after having devoted a lot of resources, and this path will take you back to square one.

2/ Incumbents leave room for new competitors after 10+ years

Products built in a specific market have already validated the demand, the user segments, their willingness to pay, and more. Over time, behaviors and markets change and that shift creates the opportunity for founders to re-think those needs from first principles and improve/upgrade they way they provide value with new SaaS.

3/ Micro-SaaS = fragmented. No-Code might be winner take most.

There are product categories such as CRMs, email marketing tools, calendar tools, automation tools, server uptime tools, and many more where there are at least 20 alternatives easily. Yet many founders that don’t have the luxury of burning millions, grow within niches of those fragmented markets and build healthy small businesses. No Code startups might not allow for fragmented markets to exist, as they might evolve into winner take most markets.

4/ Switching costs are dropping

The switching cost from one tool to the next in a category isn’t what it was. We haven’t seen that happen in places were there are network effects like Amazon and Facebook, but we’ve certainly seen it in small B2B SaaS. Companies like ConvertKit for example offer a “switching service” to help companies switch from the likes of MailChimp.

5/ No more technical moats

Anyone can build things quickly nowadays. With no code, even faster. Technical moats are not a competitive advantage, especially when we see big tech (with vast resources) copying startups almost daily.

6/ Distribution is the name of the game

Given anyone can build anything now, just building a great product isn’t going to take you very far. Mastering distribution and revenue expansion are the key differentiators. Building proprietary distribution channels or moats is key. Finding ways to expand revenue without acquiring more customers is even more important.

7/ Easy APIs + productized services = smaller headcount

There is wide range of APIs and automation tools available, and along with the explosion of productized service providers for things you would normally hire in house, today you can build scalable startups without equally scaling your headcount.

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