Step 1 and step 2
Successful companies usually start by dominating a small market (step 1) and then scaling (step 2). Step 1 often means solving an acute problem for a small, mostly homogeneous group. Then step 2 is when either that initial group becomes bigger, and/or you’re able to solve more common problems.
For example, in 2008 if you’d solved problems for iPhone users, your natural step 2 would be to ride the wave of smartphone adoption as the number of iPhone users grew year-over-year.
Oftentimes the shape of step 2 is not obvious starting out, but you can consciously pick a space that’s likely support a step 2 by picking a large, growing market. Ideally, step 1 results in a sustaining revenue stream that lets you ride out whatever secular trends lead to step 2.
Step 1 can be thought of as the “beachhead” or “entry point”. Successfully transitioning from step 1 to step 2 is what separates the goods from the greats.
- Facebook: step 1 social network for elite college students, step 2 social network for everyone.
- Google: step 1 web search, step 2 search for anything.
- Stripe: step 1 payments for startups, step 2 new financial system for all companies.
- Amazon: step 1 buy books online, step 2 buy anything online.
- Robinhood: step 1 trade stocks in mobile app, step 2 mobile bank.