Many fast-growing companies in
Silicon Valley have one thing in common: they cater to a small, affluent, urban
population — the 1 percent. Residents in high-cost cities like San
Francisco, New York and Los Angeles can order an array of goods and services
from their mobile phones.
These
startups, including Uber, Instacart and a host of food delivery apps like
Munchery, GrubMarket, Blue Apron, and Postmates, eventually have plans to
broaden their offerings to attract middle-income consumers. This is the classic
trickle-down business model.
As Farhad Manjoo wrote in The New York
Times, “The rich subsidize the rest of us — were it not for the
suckers who spent more than $10,000 on early versions of the Mac, Apple might
not have survived to build the iPhone.”
As a venture
capitalist who has invested in both Chinese and U.S. startups since 2005, I’ve
backed several companies leveraging the trickle-down model, such as GrubMarket.
But, now I see it also makes sense for some founders to take the opposite
approach: mass market first.
Going
Mass Market First
Attacking a mass
market from day one may seem daunting, but it’s not impossible — just ask
startups in China. Many Chinese startups go after the mass market right out of
the gate, as hundreds of millions of consumers there fall into the middle
class. There also are many high-net-worth individuals in China, with
plenty of companies chasing them, but the sheer size of the Chinese middle
class makes the mass-market-first business model viable. Companies like
Alibaba, Tencent, Baidu and YY all went after the mass market right away.
Founders with a global vision to serve the world’s middle class have
the chance to create billion-dollar companies with lasting growth potential.
The huge growth in
global smartphone adoption will now make this approach more common outside of
China. Unlike the first wave of late 1990s (Internet companies that targeted
higher-income consumers who could afford expensive computers), today’s startups
can quickly reach billions of middle-income consumers who only need a simple
smartphone and low-cost data plan to get online.
My favorite current
example of the mass-market-first
model is Xiaomi,
one of the world’s most valuable private companies. Like Apple, Xiaomi makes
high-quality, coveted smartphones. Unlike Apple, Xiaomi’s phones are priced
very affordably. Companies like Xiaomi with mass-market appeal not only grow
faster, but survive market downturns better than companies catering to the 1
percent.
Sectors Ripe
For Mass Market First
Consumer Hardware. We already have the ultimate example of a successful
mass-market-first company: Xiaomi. And not only is Xiaomi creating low-cost, high-quality
hardware, it’s putting customers at the center of the entire design process.
Xiaomi collects tons of usage data and customer feedback, and integrates these
findings into future products. Xiaomi now has a massive customer base; the
company sold 61 million phones in 2014 and recently broke a world record by
selling more than 2 million phones in one day. With that scale, a whole
startup ecosystem has sprung up to sell mass-market accessories and home
appliances controlled by Xiaomi phones, including Zimi (battery packs), 1More
(headphones) and Huami (activity trackers).
E-Commerce. When it comes to
e-commerce, Chinese companies like Alibaba and JD.comnailed the
mass-market-first approach, and similar models are beginning to emerge in the
U.S. Whereas U.S. e-commerce startups tend to go after high-end consumers first
(including Etsy, Gilt Groupe and monthly subscription boxes like Birchbox),
Chinese e-commerce startups often target middle-income consumers first.
In China, Mogujie
and Meilishuo.com have
achieved mass reach selling low-cost items like clothes, baby goods and
household goods. In the U.S., a great example of a mass-market-first startup is Wish,
a smartphone shopping platform offering low-cost products shipped directly from
China and elsewhere. It has a massive following of U.S. and European shoppers
looking for bargains across its four apps (Wish, Geek, Mama and Cute).
Emerging e-commerce
giants in India, such as Flipkart and Snapdeal, are also succeeding with mass
market first. Companies that sell every-day items to millions of people, not
those selling special treats and luxury goods to the 1 percent, will have
staying power when the next economic downturn hits.
On-Demand Services. Though most mobile apps for on-demand services cater to
tech-savvy early adopters, some can and will succeed with the mass market. In
China, that’s already the case. For example, while Uber perfected the top-down
approach, starting with luxury town cars and expanding into shared cars with
UberX, Didi Dache in China and GrabTaxi in Southeast Asia started with the mass
market first. These companies recruited existing taxi drivers for low-cost
rides, and are only now expanding into luxury services.
Meituan, a daily
deals site, and Wuba, the ‘Craigslist of China’, also offered their services
via mobile app to the mass market first. Some on-demand mobile apps that could
appeal to middle-income consumers in the U.S. include Boxed, which delivers a
low-cost ‘club store’ shopping experience, and any other services that offer
affordable necessities,
While it’s perhaps
more natural to build a mass-market startup in China and even India, it’s far
from impossible in the U.S. More importantly, the best startups taking the
mass-market-first approach know they must go global from day one. Catering to
the 1 percent in San Francisco and New York may deliver revenue and high
margins in the short term, but founders with a global vision to serve the
world’s middle class have the chance to create billion-dollar companies with
lasting growth potential.
Citation from TechCrunch: http://goo.gl/ZrG1Jd
No comments:
Post a Comment