The Market Wedge: How to Pick Your Initial Market
How and why early-stage startups sacrifice growth for power
It’s 2011. You’re a New Yorker visiting San Francisco, and your friend tells you about this magic new app called “UberCab.” You press a button, and a driver shows up within minutes. Amazing! A few days later, you’re back in New York. You open the UberCab app and... it doesn’t work! You become the physical embodiment of take-my-money.jpeg. Why won’t they take your money??
The same pattern repeats itself over and over:
- Facebook started only at Harvard
- Airbnb started only in San Francisco
- Opendoor started only in Phoenix
- DoorDash started only in Palo Alto
- The Athletic started by only covering the Cubs
This strategy—solely focusing on serving the needs of one niche first before expanding to others—is a market wedge. And although it might seem simple (“gotta start somewhere!”) getting your market wedge right is anything but.
Although startups have been using market wedge strategies since the beginning of time, the term “wedge” was first made popular by Chris Dixon’s article “The ‘thin edge of the wedge’ strategy.” As a whole, wedges are under-theorized, underutilized, and yet are vital for startup founders to understand.
A wedge is a method for spending limited resources strategically. You pick one thing, do it well, then use that momentum to expand later. In our first post on wedges, we focus on “product wedges,” where you make your initial product as easy to adopt as possible—even to the point where you sacrifice profitability and defensibility. A good example is TikTok, which got its initial traction in part by allowing users to add music to videos and export them to share with their friends elsewhere (come for the tool), and later developed staying power by focusing on the “For You” page experience (stay for the network).
A market wedge, on the other hand, is basically the inverse of a product wedge. Instead of sacrificing power for growth, you sacrifice growth for power, and focus on a small niche within the larger market you’d eventually like to reach. By limiting who you aim to serve, you have a better chance of developing some power within that market early, like network effects, brand, economies of scale, etc.
For example, in order to get a local marketplace like Uber to work, it was critical that they launched in a constrained area to start. Imagine Uber had launched globally on day one: 99% of people would not have been able to successfully hail a ride. Picking a wedge is about making a promise you know you can actually deliver on. But that constrained start wasn’t the only benefit to Uber. It also allowed them to:
- Learn from early mistakes in a relatively easy-to-fix environment.
- Take the time they need to prepare for later expansion.
- Create a pool of drivers (this is vitally important, I’ll get into this later).
- Build up their brand and drum up investor interest.
Two years later, Uber had only expanded to five other markets: New York, Chicago, Paris, Toronto, and London. Two years after that, Uber was in over 100 cities well on its way to becoming the behemoth it is today.
Many companies like Uber have followed the market wedge strategy and have seen great success (we’ll go through 17 more in this article, but I’m sure you’ll be able to think of plenty others). However, just as with the product wedge, the market wedge isn’t for everyone. It’s simply another tool in the toolkit for building momentum around your idea. We aim to help you understand how and why a market wedge works so you can use its principles as you grow.
The roadmap for this post is:
- List the main types of market wedges (geography, topic, product category, community, demographic) with a few good examples for each—and some counter-examples.
- Explain the key mechanics that make market wedges work.
- Explore what makes a good initial niche to choose.
Ready? Let’s dive in!
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