DEMAND AND SUPPLY

Venture capitalist Marc Andreessen once declared that the market a business is targeting is the most important factor to the company’s success or failure. Not the product itself, not the team behind it—the market.

In a great market—a market with lots of real potential customers— the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.
— Marc Andreessen, entrepreneur and investor

That is what Andreessen calls market fit.

The other important factor, of course, is making sure those customers know your product exists. For a long time, mass-marketing platforms like broadcast and retail were the primary way in which brands achieved that recognition. However, these channels were the purview of only the very mighty. As consumers came to expect more personalization, major companies moved to mass customization. Still, the 80-20 rule ruled, and huge swaths of consumers never really had their needs satisfied.

Now, entrepreneurs are tapping into these pockets, often using targeted advertising and digital direct-to- consumer (DTC) channels, and proving these smaller markets are large enough to disrupt major categories.


AHEAD OF THE PACK

Take Bevel, for example, a shave system intended for people with coarse, curly hair. “Nearly 80% of black people and 30% of people of other ethnicities are affected by razor bumps and associated irritation,” notes founder Tristan Walker. “Looking at that math, it adds up to a whole lot of people. All of whom have simply been putting up with less-than-great shaving solutions.” Walker’s company has raised more than $33 million in funding (including from Andreessen’s VC firm) and, though it began as an exclusively DTC product, Bevel is now available at major retailers like Target.

Walker recently launched a new haircare product line, FORM, which offers a range of products for women of all hair textures. Customers complete a questionnaire that then matches them with a recommended collection for their hair type.

Fashion company Universal Standard is another example in action. Universal Standard makes high-quality, sophisticated clothing for women sizes 10-28. Co-founder and Creative Director Alexandra Waldman started the company because she was tired of settling for whatever she could find since most companies don’t carry her size. “Women who are outside the store- size average live behind a veil,” she said recently. “The scarcity we've had to get used to is quite invisible to those who don't share our wardrobe problems. This is despite the fact that women larger than a size 10 make up a majority...in the U.S. alone.” The company follows a DTC model and has seen its sales increase by triple digits every quarter since launching in 2015. They’ve recently been featured in New York magazine and Fast Company, and on The Today Show, among other outlets.

Other recent businesses that have found success in underserved markets include Fenty Beauty (Rihanna’s makeup line that includes a wide variety of foundation options for women with dark skin), Third Love 
(a bra company that sells bras in half- sizes and hard-to-find larger sizes), Oportun (a financial services startup targeted at Hispanic Americans), and Kuiu (ultralight mountain hunting gear).


TAPPING IN

The key to success for these companies is that they don’t need to go through mass media channels or major retailers to reach their consumers. They don’t need to perform expensive research to find needles in haystacks. They’re targeting a very specific customer base and they can target them directly—on the podcasts they listen to, in targeted Facebook ads, through influencer campaigns, etc. These brands don’t need to build an ecosystem around themselves—a customer ecosystem is already built for brands to tap into.

B2B companies are also finding success in targeting niche markets. Guesty, for example, targets property managers who have a portfolio of short-term rentals. Their tech platform syncs various management operations (think pricing and reservations), and simplifies all communications into a unified inbox. Cowlar, a smart collar for cows, is being marketed to farmers as a way to identify if a cow is pregnant or ill to increase milk yield. And Paubox, encryption software for HIPAA compliant email, allows healthcare providers to communicate with patients without requiring either to go through a portal or download encryption software.

Large and established companies have taken note and are breaking their markets into smaller units to combat this disruption. Take Nike, for example. The company recently launched a “consumer direct offense,” which focuses on one-to- one contact with segments in 12 cities that they project will account for 80% of their growth through 2020. In New York City, for example, where street basketball is popular, the company is partnering with the Parks and Recreation Department to strengthen the brand’s presence at courts in all five boroughs.


POLITICAL EXPLOITATION

Brands aren’t the only ones leveraging this capability. In September 2017, it was revealed that the Kremlin-linked Internet Research Agency purchased thousands of targeted Facebook ads intended to influence the 2016 election by exploiting political divisions in the US. Facebook says the ads along with unpaid Internet Research Agency- backed posts reached 126 million people. On November 1, the House Intelligence Committee, which has been investigating the matter, released a small sample of the ads.

People whose Facebook interests included Christianity and Conservatism were targeted with a meme showing a cartoon of Satan and Jesus arm wrestling. “Satan: If I win Clinton wins!” it read. “Jesus: Not if I can help it!” Bernie Sanders supporters were shown an ad that quoted Sanders criticizing the Clinton Foundation. Other posts were intended to exacerbate polarization around topics like Black Lives Matter, the second amendment, police brutality, and immigration.

Similar targeted ads were also purchased on Twitter and YouTube. "We’ll be making all of the Facebook ads public, along with their targeting," Representative Adam Schiff, the top Democrat on the House Intelligence Committee, said at a November hearing. "We also hope to make the Twitter and Google ads public...as well as their targeting. Because people really need to see just how cynical this campaign was."


APPLICATIONS

What many of the companies mentioned above have in common is that the entrepreneurs behind them come from the segment they’re targeting. They personally saw need in their market and decided to fill it. But you don’t have to be from a particular segment to do this.

With segmentation, any company can break its customer or client base into segments and address their wants and needs individually. Maria Valdivieso de Uster, Director of Knowledge for McKinsey’s Marketing and Sales Practice, puts it this way:

The most successful sales leaders I speak to are extremely proactive at mining the growth that lies beneath their feet in what can appear—on average—to be mature markets. They break larger markets down into much smaller units, where the opportunities— prospects, new customer segments, or micro segments— can be assessed in detail.
— Maria Valdivieso de Uster
 Director of Knowledge McKinsey’s Marketing and Sales Practice

Determining what these sub-segments are and what people in those segments want will take some market research. Existing data can be mined to identify segments, and primary and secondary research can help you to build personas for each of them. By deeply understanding what these customer or client segments want, you can tailor your sales, marketing, and product development strategies accordingly. Plus, you can identify new prospects with look-a-likes in these segments. After all, if you don’t fulfill the needs of these segments, someone else eventually will.