Niche Marketing strategy and The Lean Start-up Strategy - Apothen Corporation

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Apothen Corporation needs to adopt the Niche Marketing strategy and The Lean Start-up strategy

We are writing to you to recommend a few startup strategies. We did thorough market research in the technology start-up sector and conclude that Apothen Corporation needs to adopt the Niche Marketing strategy and The Lean Start-up strategy; these strategies possibly enable Apothen to minimize losses, agilely learn about the market, and sustain itself from the very beginning.

Self-sustainability is crucial to technology start-ups. There have been countless cases of companies who had brilliant business ideas and disruptive innovations, yet still failed because they ran out of funds. It is usual (even expected) for technology start-ups to incur losses in their early years, as there are unavoidable expenses in developing, producing, servicing, and marketing activities. However, if a start-up is not capable of keeping up finances in line with expenses, it will become bankrupt before launching its product.

We recommend strategies stated above because we recognize the two business trends that are changing the way start-ups are structured and the momentum in which these new enterprises transform their business. The trends have almost the exact same name as our recommendation: the Niche Marketing trend and the Lean Startup trend.

  1. The Niche Marketing trend, as H. R. Yim wrote, is a entire new business trend created by several technology giants such as Microsoft, Qualcomm and Oracle. Yim stated that of the 2004 Fortune's Most Admired Firms Index, 13 (81.3%) of the firms registered were rapid growing startups that adopted the Niche Marketing strategy.
  2. The Lean Startup trend, as Steve Blank wrote in a Harvard Business Review article, is the newly emerged Lean Startup movement. Steve describes the movement as a new startup method to experiment and acquire feedback continuously by building scrappy products and changing them, rather than using the traditional and expensive method of launching an elaborate product after carefully perfecting it.

To ensure great start-ups with lesser funds can also flourish, entrepreneurial professionals studied many technology start-ups and developed successful guides to understand the startup trends. We will further explain the step-by-step guide to take advantage of these new trends.

Securing a Position in the Marketplace by Niche Marketing

In his book, Crossing The Chasm, Geoffrey Moore coined the term "Technology Adoption Life Cycle" and explained five types of people who comprise this cycle.

  1. Innovators - technology enthusiasts who immediately see value and advantages in your product and excitedly purchase it, even if testimonials did not exist.
  2. Early Adopters - visionaries who dreams about high business achievements and purchase your product before the majority does, hopefully to achieve the goals from it.
  3. Early Majority - realistic, price-sensitive prospects who ensure the product's functions and extended existence. They will only buy if they see added-profit.
  4. Late Majority - conservative people who only purchase when your product is fully mature just to keep up with the early majority.
  5. Laggards - skeptics who seldom buy.

Moore then defined the chasm as the difficulties in transitioning early adopters into early majority, meaning that a product sales amount can vary but may never enter the majority markets. In order to crossing the chasm, Moore suggests the start-up to be laser-focused about choosing the product target group, penetrating a niche market, then dominating it. By doing so, the start-up can:

  • specialize in a niche market, therefore gaining market powers and market shares.
  • allocate its assets well, and prevent inefficient and wasted spending.
  • create a more stabilized source of revenue, and securing the financial position of the firm. Below is an approximated re-creation of the famous Technology Adoption Life Cycle Bell Curve.

Establishing a Self-sustainable Business by Being Lean

In his book The Lean Startup, Eric Ries defined the whole Lean Start-up strategy as a series of steps:

  1. Vision
  2. Steer
  3. Accelerate

In the Vision stage, achieving validated learning is crucial. Validated learning is the process to identifying and eliminating the functions a customer doesn't need, and keeping those which are wanted. The identifying process then requires the firm to not only ask customers whether a function is desired, but to actually individually experiment the new function on the users and to record and analyze their usage behavior.

In the Steer Stage, the firm first lists out the assumptions it has previously made for the consumers and tests each of the assumptions independently. If the customers' behavior meets predictions, the assumption then is deemed to be true. You should keep testing assumptions in small batches, yet keep them independent: that is, design the assumptions tested and make sure only one variable exists in each test. If an assumption turns out wrong, then simply change it.

Once changes have been made, the firm enters the Accelerate stage. In this phase, not only should you test assumption in small batches, the audiences being tested on should also be a small size in case the firm messes up. Facebook has done it with the Timeline feature in 2011: Only a small size of selected users were affected and examined by the new social network feature at first. Business growth is then measured to see if the firm successfully implemented the new function with desired growth rate. In the case of Facebook, as the social media giant saw Timeline helped its users to better organize the overwhelming social media content, Facebook then applied the feature to all users.

All three steps to a growing lean start-up serve crucial purposes. The Vision stage emphasizes validated learning, the Steer stage provides you with tools to test assumptions, and the Accelerate stage allows you to achieve the needed growth rate without wasting excessive funds even if the implemented change fails.

What It Means for Apothen

As we get familiarized with the Niche Market and Lean-Startup strategies, we will discuss here the specifics for Apothen Corporation. Apothen Corporation intends to build a cloud-based point-of-sale (POS)software system for installation on Android tablets and usage in the restaurant industry. The software will gather valuable information (i.e. customer feedback, ratings, reviews) to convert into valuable products (i.e. restaurant promotions).Apothen specified the product functions to utilizing online to-go orders, creating a transaction-based rating/review system, implementing a customer loyalty program, inventing a customer-restaurant interacting feedback system, integrating social-media, alternate payment method other than credit cards, and developing an app.

Although Apothen's idea of this POS system is innovative and possesses the potential to revolutionize the restaurant business, we recommend you first find a niche market to penetrate and secure market share. We have analyzed the 2013 Restaurant Industry Forecast and the 2010 Restaurant Industry Operations Report and found that limited-service restaurants have the highest income before income taxes per dollar of 5.9 percent, compared to that of full-service restaurants, ranging from 1.8 percent to 3.5 percent, depending on the average check per person. Given the fact that Apothen's product will position as a high-cost system and has finalized the license fee to customers as $500 USD a month or a small percentage of their monthly revenue, we recommend you target the limited services restaurants for their higher income margin. We specifically recommend you to focus on limited service restaurants with mainly made-to-order and high-priced beverages, such as high-end, modern coffee shops.

We also believe that the initial product you are trying to create incurs high costs, which could possibly be avoided with the Lean Start-up strategy. We recommend implementing a maximum of three independent assumptions. While we also examined diners' demands in consumption at restaurants in the 2013 Restaurant Industry Forecast, we have structured a two-step assumption testing procedure based on the available information.

  1. Preliminary assumptions
    • Restaurants are willing to use POS on a tablet computer
    • Restaurant goers are willing and able to sign up membership (security concerns)
    • Restaurants are willing to have transactions stored in the cloud
  2. Tested functionality assumptions
    • Restaurants need to implement a to-go function with a viewable online menu
    • Restaurants see the need for a more accurate and transaction-based rating/review system
    • Restaurants with existing POS systems are willing to switch to tablet-based POS system It Is Now In Your Hands

We have tailor-made these recommendations and strategic advice for Apothen Corporation. We believe the Niche Marketing strategy and the Lean Startup strategy can jointly help your business to excel if used appropriately. While starting-up can be extremely challenging and competitive, to be agile, lean, laser-focused, and to continuously adopting validated learning are the four main aspects that we believe will flourish your start-up. We wish you the best of luck and look forward to the next time we cooperate and build a closer relationship.

Works Cited

Ries, Eric. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create

Radically Successful Businesses. New York: Crown, 2011.

Moore, Geoffrey A. Crossing The Chasm: Marketing and Selling Disruptive Products to Mainstream Customers. New York: HarperCollins, 2006.

National Restaurant Association. 2013 Restaurant Industry Forecast. National Restaurant

Association Research and Knowledge Group, Washington, DC, 2013. Retrieved, January

30, 2014, from http://www.restaurant.org/News-Research/Research/Forecast-2013

National Restaurant Association. 2010 Restaurant Industry Operations Report. National

Restaurant Association Research and Knowledge Group, and Deloitte. Washington, DC,

2010. Retrieved, January 30, 2014, from http://imis.restaurant.org/store/detail.aspx?id=OPSRPT2010

Harvard Business Review. Why the Lean Start-Up Changes Everything. Steve Blank. 2013.

Retrieved from http://hbr.org/2013/05/why-the-lean-start-up-changes-everything Yim, Hyung Rok. "A Strategic Pathway to the Rapid-Growth of New Startups: Niche Marketing and Strategic Investment". ProQuest. Web. 5 Feb. 2014.

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