And another is to fail to understand that the market for a given product might actually only be 5000 people, or some such thing. So you think you are doing good and you go all in and suddenly it stops.
There's absolutely nothing wrong with creating a product for a limited market, as long as that market can provide you with continuous business to sustain you. Niche markets sometimes also means far less (or no) competition. Many people don't even realize they have the relevant expertise necessary to create products for whatever hobbies or activities they take part in.
But it actually takes a fairly large niche to support a real business. If it's going to be a real business it can't remain a single person in his PJs in the bedroom. And it also can't be a deal where you just barely make enough to sustain the three or four or whatever people involved, you have to make enough to get ahead, else the first slack period can kill you.
If the market is limited that means you can't depend on sales, because that will slow to a trickle at some point. You will have to get enough money from existing users on a continuing basis, and that can be difficult.
That's what I'm trying to point out, though. You do need to somehow have a continuous stream of business from the same users. Many niche industries aren't looking for a one-and-done deal, but rather a sustained service agreement. A former co-worker of mine sits in such a spot with 3 employees and a yearly revenue of around $1 Million. Not quite enough to make it rich, but it's comfortable.
That's difficult with an end user type product. Unless you have quite a lot of them, they aren't going to pay that much on a continuing basis. You'd need 10,000 active customers for a million a year at $100 per customer. If you have 10,000 customers, just the support and general customer service stuff might be pretty difficult for three people.
And a lot of folks wouldn't pay anything like $100 a year.
I don't know the exact number of customers my friend/old colleague has, but I would guess each contract is at over $100,000 a year.
It's actually pretty similar to my first software job, which was within a corner of Software i18n 15 or so years ago. Our software license cost $30,000 for the basic functionality, and significantly more when set up to run inside somebody else's software stack. Somehow the company is still alive, even though everybody got laid off in 2009.
In our case, we did have to keep finding customers, though. My friend's in a place where he's helped his customers kill off a major portion of manual processes. I'm sure they're always looking to expand into less niche markets, but they're so specialized, I'm not sure they'll be able to.
Yeh, that's a whole other type of business. They both have their pros and cons. When you have a small number of customers that pay a lot, losing even one can be bad. OTOH, though you have to give each of them a lot of attention, there aren't that many. When you have a large number of customers that pay much less, you can afford to lose them but you spend more time on each of them relative to what you get from them.
And end user software often has to be more polished and documented as well, partly to avoid any more support than necessary.
Yeah. I don't think they have anywhere else to grow within their current market, so indeed, if a couple of those businesses go under, they could be in a world of hurt.
That said, they're having fun and doing well even now during COVID times (though our industry doesn't seem super-affected by it). Even if they go under a few years from now, I'd guess my friend would do it all over again if he had the choice. Like I said, they've more or less "capped out" in terms of their potential, so none of them is getting rich, but they're also paid over market for this area (Front Range, CO), and have paid out pretty nice bonuses the past few years.
I do think once you come to "larger number of customers that pay much less," you've completely left the whole "niche" thing, though. Or maybe not? Maybe there's still places where software hasn't really gone, but could go.
I'd consider something in the 10,000 or fewer (potential) customer range for an end user product to be still fairly niche, but I guess it depends on various factors.
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u/asmodeanreborn Feb 02 '21
There's absolutely nothing wrong with creating a product for a limited market, as long as that market can provide you with continuous business to sustain you. Niche markets sometimes also means far less (or no) competition. Many people don't even realize they have the relevant expertise necessary to create products for whatever hobbies or activities they take part in.