In order for startups to thrive, they must quickly accumulate monopoly positions in massive emerging markets. But what if you aren’t a startup? What if… you’re just a person?
I’m going to take you through a quick thought experiment in this post. It won’t be terribly scientific, but I think it will get the job done in terms of letting you know what exactly I mean by the niche monopoly.
Let’s say we have a $1 billion dollar service market with ten competitors. Overall, if we say it’s split evenly (it likely be Pareto instead, but that won’t affect our experiment), we have around $100 million a year. If you’re a startup trying to run up a $1 billion market cap, then that’s a good deal. If the competition is still small, it makes sense to go forth and conquer with a strong growth strategy.
But let’s say it isn’t $1 billion — let’s say, instead, it’s $1 million. That leads to $100,000 of revenue a year — one thousandth of the revenue! A startup would be silly to go into a market that size.
So, here’s what happens: the big fish migrate to the big pond, and leave the small pond open. So instead of 10 competitors in a $1bil market and 10 competitors in a $1mil market, you see 100 competitors in the billion and only a handful in the million.
Now, think about this other fact: there are many more million markets than there are billion markets. Billion markets are typically massive, revolutionary solutions to problems — problems which there may only be five of any given year. However, million markets are more likely to be smaller annoyances that people in a certain niche would definitely pay to have fixed, but wouldn’t pay enough for the larger corps to give any attention to.
Now, let’s flip the script. Let’s not focus this on startups — 100+ person teams — but rather, small 1-3 person groups, something I refer to as income generators. In this case, an income generator has a lot lower of a need; you aren’t paying the mouth of an entire company, but rather the mouth of one person. From this angle, that $100,000 a year in revenue is beginning to look a lot more attractive. Not only that, but since the bigger fish have left, there’s less competition — in which case, this might be a winner-take-all market of $1 million a year!
Combine this with the fact that micro-problem markets can come in the dozens per year, and you finally reach the concept of the niche monopoly. For a person who is trying to change the world, these micro-markets probably aren’t very helpful. But for those who just want to make an independent living, they can be life-changing.