by Tom Taulli, contributor, Forbes /
When Mark Zuckerberg focused his social network initially on Ivy League campuses, it seemed kind of foolish. How could this niche be a billion-dollar opportunity?
Yes, of course, he’s now one of the world’s richest persons. And if anything, the college market was ideal for getting early adopters as well as gaining valuable feedback.
So what are some of the factors to consider when determining the right market focus in the early stages of a venture? What can you do to improve your odds of success?
Well, to help answer these questions, I recently talked to Matt Chasen, who is the cofounder and CEO of uShip. The company, which operates an online marketplace for freight/shipping services, has more than 600,000 transportation providers in 19 countries and over 4 million businesses and consumers that use the platform to ship a wide variety of goods. uShip has also raised $25 million in funding from top-tier investors like Benchmark Capital, DAG Ventures and Kleiner Perkins Caufield Byers.
So here’s some advice from Matt on how to attack a market opportunity:
Rules of Thumb: Each industry has them. Interestingly enough, they are ripe for disruption because people take them for granted.
“For us, in shipping and logistics, it was the rule of thumb that when a shipment got beyond a certain size — say a parcel weighing over 70 lbs or of a certain length and width — it no longer qualified as a one-man delivery,” said Matt. “Based on this particular rule of thumb, it had to get shipped as ‘freight.’ This jumped the cost dramatically, sometimes by 500 percent of a parcel just slightly lighter or smaller. When we discovered this, being the industry neophytes we were, it made absolutely no sense to us. But we knew this was old-school thinking and we could get around it. So we seized the opportunity and let the market decide the rate for that shipment, instead.”
Beachhead Approach: In the early days of uShip, Matt tried to identify niche areas where his company could gain strong initial traction. He wanted to follow the advice of former Southwest Airlines CEO Herb Kelleher: “Think big, start small.”
So for Matt, the niche was the fast-growing residential delivery business of eBay which had generally bad service and costly options for customers (especially for large items).
“This market was being overlooked and severely underserved by the multi-billion dollar transportation industry,” said Matt. “Those serving this market were highly fragmented so there was no FedEx or UPS in the minds of consumers for shipping big stuff.”
Learning: Going into a market, you will essentially learn by trial-and-error. “As we found our footing in this beachhead,” said Matt, “we found eBay buyers and sellers to be a very passionate group of consumers who shipped millions of cars, boats, furniture, jet skis, you name it – and had no real easy or affordable way to get it done. The eBay community took notice of uShip and began using us to connect with trucks and it represented our first real growth phase as a company.”
Unit Economic Costs: A market may seem like a good opportunity but the profit potential could still be a loser. This is why it is important to get a good sense of the unit economic costs.
“After we bootstrapped and built a minimum viable product (MVP), we were able to test our acquisition cost via Google Adwords,” said Matt. “As we followed people down the funnel from click to conversion, we learned it boiled down to a simple customer acquisition cost model of $10 and we were able to turn that into $20 within 7 days.”
But even with a proven model, there still needs to be ongoing retooling. According to Matt: “Whatever you have today, it’s going to be overhauled eventually and look much different tomorrow. In fact, every few years, we zoom out on the business and attack our model like we’re trying to put ourselves out of business. This keeps us on our toes as a business and leadership team, and helps us figure out what we need to adjust, what’s working, and what’s not. We know that if we don’t figure it out, someone else with endless resources potentially will.”
Tom Taulli (@ttaulli) is an Enrolled Agent and the founder of BizDeductor, which offers services and apps to help save a bundle on taxes.
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