When people dig for gold, don’t pick up a shovel and dig with them; instead, sell shovels.
The best way to stand out above the crowd is to do the opposite of what everyone else is doing. But for companies and professionals, it doesn’t make sense to blindly go against the crowd. Instead, it’s best to solve a new pain created by the industry leaders.
Remember when Groupon, Living Social, and the daily deal industry exploded back in 2010? A bunch of me-too companies instantly sprang up trying to capitalize on a hot industry. But the companies that directly competed with Groupon on a national level quickly failed because they were trying to dig for gold in a spot that Groupon had already dominated.
That’s when my team and I realized that we had an opportunity to sell shovels. We realized that while small businesses were getting a large influx of customers from daily deal sites, they weren’t getting the right type of customers and many of these deal-seeking customers would never return. We created a digital rewards program called RewardMe to solve a pain created by the daily deal industry.
The initial concept of RewardMe was to help small business track their customers and give them special treatment. While Groupon brought a bunch of unqualified customers to their door, our goal was to capture their info and get them to keep coming back.
Our vision resonated well with SMBs and we had many businesses use us in the Bay Area in Northern California.
How to identify a hot industry that’s now saturated
Once you realize an industry is hot, it’s too late to get into the game. Unless you carve out a specific niche, it’s best to avoid a me-too product in an already crowded industry.
Hot industries are covered by online tech publications all the time. In the case of the daily deal industry, Groupon and Living Social were the most mentioned companies as they were the leaders in the industry.
The leaders in the industry don’t have to have a huge share of the market, but they do have the market that matters and have a huge head start. Groupon dominated many metropolitan cities across the US back in 2010 and were also heavily funded, allowing them to hire a huge sales force that few companies besides Living Social could compete with.
Carve out a niche to get into the industry (dig somewhere else)
If you’re fast enough, you can get into the industry with a me-too product as long as you carve out a specific niche. One of my good friends started the Groupon of Orange County. Groupon had yet to hit the OC, so he quickly assembled a sales force and straight copied the daily deal model that Groupon created. He eventually sold the company for a decent amount of money in less than a year.
Though you may never become the leader in a crowded industry, you still have a solid chance at getting bought out by the leaders in the industry. Think of it this way: would Groupon prefer to go head-to-head with my friend’s company in the OC, or would they just buy them out and use their already established infrastructure to dominate the OC. The latter option is a cheaper and faster way to capture the OC.
If you see a clear leader in an industry that has lots of funding, then they’ll be on the look out for strategic acquisition. This could be you if you carve out a specific niche and show value.
Approach the industry differently and sell shovels
This is what we did. Instead of competing with Groupon, we created an entirely different product that attacked a new pain in the industry.
It seems that many companies had a similar idea. After 6 months of launching our product, we began to see press for startups that were very simliar to ours – trying to get into the loyalty industry. Many started around the same time as us (end of 2010), and were finally gaining enough traction to get press.
Throughout 2 years of battling to dominate the industry, we saw many competitors get funding, many competitors die, and many competitors get acquired by larger players in the industry.
It’s very fascinating. I learned that one of the greatest assets that an entrepreneur can have is to be a true visionary and predict hot industries before they happen. Many times the winner is the company that got into the industry first AND at the right time.
Too many entrepreneur try to jump into a hot industry when it’s already saturated and has big players. Instead of diving head in, think of a way to provide players in the hot industry with a new product or service to solve a new pain created.
Jun Loayza is the President of Lion Step Media. In his entrepreneurial experience, Jun has sold 2 internet companies, raised over $1,000,000 in funding, and lead social media technology campaigns for Sephora, Whole Foods Market, Levi’s, LG, and Activision.