Why the market niche matters more than the idea for a startup

When launching a startup, choosing the right market niche and understanding how to approach it correctly can be crucial for the success of the initiative, even more than the idea itself. Often, we focus on the initial intuition, on the business idea that "will change the world," when in reality, it's essential to start from understanding the market and identifying that small space where there is a greater need for innovation.

What is really a "market niche"?

In simple terms, a "market niche" refers to a segment of a category or sector that has particular needs, not fully met by the existing solutions in the market.

A concrete example: in a world where businesses have only general management software, designed to adapt to multiple categories, management software for bakeries represents the correct definition of a solution targeting a market niche, as it addresses operational and functional needs specific to that sector.

Starting from the identification of the niche allows you to immediately know two crucial aspects: the startup's target and the pain points from which to start for the ideation of the solution. This way, energy is saved, focus can be on the target to fully understand its needs, and thus realize a solution that is desirable and truly brings innovation. Otherwise, as often happens, one might find themselves with a solution searching for a problem, or even worse, searching for a market.

Criteria for evaluating a niche

Is it possible to identify a market niche in advance? Yes, by following the right steps, although one is not always lucky enough to identify the correct one right away. Often, the right sector is intercepted to start from, but it can be so broad that it becomes dispersive, necessitating multiple attempts before focusing on the right niche.

1. Real and felt problem

First of all, we start from the problem. The idea can be wonderful, but if it doesn't solve a felt problem, it won't go far. It's essential, therefore, to talk with the potential target through 1:1 interviews and digital surveys, collecting as much data as possible to understand the nature of the problem (we call this process problem-solution fit). Often, there are signals indicating the presence of a real problem: manual and repeated processes, Excel sheets, high stress levels, etc.

Frequency is also very important, as a recurring problem justifies the adoption of a subscription product, with direct impacts on pricing and retention.

2. Clearly identifiable customer

The customer must be easily and clearly identifiable: it is not enough to understand the category of the business, one must truly understand who within the company feels the pain, how they behave, and what decision-making power they have. This is a first step in defining ICPs (ideal customer profiles), which are fundamental in the go-to-market process. If the customer is not well defined, we are not yet correctly identifying our niche and are still too generic.

3. Willingness to pay

The willingness to pay is perhaps the most important criterion: is the problem so felt that the potential customer is willing to pay a subscription for our solution? But above all, how much are they willing to pay? Are they already paying for other solutions with clearly allocated budgets?

4. Market accessibility

The market must also be accessible, without requiring excessive efforts or investments in the early phases of go-to-market. The channels and strategies must be clear and measurable: right from the early stages of analysis, one can understand which strategy between inbound and outbound is more effective, as well as which channels are most cost-effective (LinkedIn, Meta, Google?). A direct sales network might work very well for certain niches, but if the acquisition time is too long, how can we validate our idea in the market—and correct the course—in just a few months?

5. Manageable competition

It is important to be wary of so-called "blue ocean" niches, or markets that have no competitors: if no one has thought of a solution for that niche, there is a reason… and thus we will have to make a double effort to conquer it, convincing our target of the goodness of a solution for their problem. Obviously, "red oceans", or overcrowded markets, also bring with them many complexities that are perhaps better avoided during the launch phase. The color of our ocean is therefore important to understand if we are identifying the correct niche (perhaps we can coin the term "purple ocean", the right middle ground).

The most common mistakes in choosing a niche

The niche does not necessarily indicate a "small market," thus with few customers, but identifies a group of similar customers with similar problems.

A very common mistake, as already mentioned, is the classic "solution searching for a problem": a technically beautiful product might be created, perhaps with a perfect demo, but that no one wants. For this reason, the criteria described above are fundamental.

Also, choosing a niche because it is trendy is a mistake to avoid. Hype does not necessarily indicate a market that is ready (don’t trust what you read on LinkedIn).

A correct niche, finally, must not be too heterogeneous, as it might present different problems that require different solutions, making it impossible to clearly define pricing or an adequate go-to-market strategy.

How we choose the market niche at Startup Bakery

At Startup Bakery, we always start with market analysis to validate our business ideas. The Pick phase of our recipe is the stage where we focus all our efforts on what we define as "analysis of problem-solution fit": a dialogue with the market to gather as much data as possible, respond to the criteria defined above, and verify the presence of problems that truly require the realization of a solution.

A concrete example is Sencare. The initial idea was born within the field of home care, a very broad area that includes extremely diverse realities: cooperatives, nursing homes, foundations, public entities, private structures. In the initial phase, the focus was too broad: seemingly similar problems, different processes, different decision-makers, and purchasing dynamics difficult to generalize.

The biggest problem in these cases is the difficulty in building a clear and coherent value proposition: when the target is too heterogeneous, the risk is to develop a solution that attempts to adapt to everyone, ending up not truly meeting the needs of anyone.

After an initial phase of market discovery, we understood that it was necessary to focus on an even more specific target, characterized by recurring operational processes and more homogeneous needs. This narrowing of the scope allowed us to clarify the positioning, simplify the product, and make the approach to go-to-market more effective.

In this case, the niche did not represent a limit, but a tool to reduce complexity and increase the likelihood of project validation.

Conclusions

Choosing the market niche is therefore one of the most delicate steps in the launch phase of a startup. It is not about "thinking small" but about starting consciously, reducing uncertainty and increasing the likelihood of building a solution that responds to a real need.

A well-defined niche allows you to understand who the customer is, what the pain points to address are, and how to correctly structure product, pricing, and go-to-market. Conversely, starting from a market that is too broad or poorly focused often leads to generic solutions, difficult to position, and even more difficult to validate.

The advice is therefore to prioritize focus over breadth: identify a specific problem, for a clear target, in an accessible market. If the problem is real and felt, the expansion into larger markets will be a natural consequence, not an assumption to be forced from the outset.

*Startup Bakery is the Italian startup studio specialized in creating B2B SaaS companies with Artificial Intelligence. We offer aspiring Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We help companies in the innovation process.*