It is critical for a startup to do ONE thing and do it WELL and become the big fish in a small pond. However, the theorem of being the big fish in a small pond is not as straightforward as it seems.

First, which pond

We like ponds that haven't yet been discovered for one reason or another, or ponds that are unattractive because they are dirty or smelly.

Incumbent companies are usually very good at launching higher-quality products or services for the high end of their market - typically because they're under pressure to seek higher revenues or profitability. More often than not, these incumbent companies win the fight with a new company when it comes to the high end of the market. Consequently, incumbent companies over a period of time gravitate towards their mainstream customers and overshoot the needs of their low-end customers. This creates opportunities for new companies in the lower end of the market that is unattractive for one reason or another - low profitability or low revenues or different sales model - to the incumbents. By going after these lower ends of the market, new companies can grow and gain foothold before the incumbents take notice.

New species tend to grow and evolve in the dirty smelly ponds and not the ones with pristine water.

Going after the lower end of the market initially gives new companies a unique opportunity to get picked up by the tastemakers.

Second, how big a fish

Startups are tempted to jump into the mainstream market segment as soon as they show some traction in the low end of the market. How much traction is adequate to make the jump?

Waiting till the fish has grown so big that it has eaten up most of the small fish in the pond is too late. The first thing the incumbent does when it notices that a startup has started garnering significant market share in the lower end of the market is to copy it. If the incumbent has a channel or product that it can quickly repurpose to the lower end of the market, then the startup is better served by attacking the larger market sooner than later. If the incumbent doesn’t have such a channel or product then the startup can grow into a really big fish in its pond and carry its momentum from the lower end of the market as it moves up.

What happens when a fish becomes a big fish in a big pond is a scenario for a later post.