How to find profitable underserved markets
How to find profitable underserved markets
There are four signs that you can use to find underserved markets: high growth trajectory, unexpected attributes, amplifying external factors and high dissatisfaction rates.
Hello everyone 👋
This week we are talking about how to find the underserved markets all around us. These underserved are full of opportunities for any organization that can think creatively and be bold enough to try new ideas.
I. The search for underserved markets
Last week’s newsletter on pickleball made me ponder on how to unearth underserved markets. Pickleball stumbled upon 18 - 34 year olds who want to be active and social but don’t want an intense workout. The sport’s incredible growth has hinged on this underserved market.
Pickleball could have gone after over served markets like existing tennis players. The challenge is that these markets have plenty of options. Tennis players can play their own sport, similar sports such as racquetball, squash, table tennis, badminton and even other non-racket sports. The competition is fierce.
Underserved markets are fantastic because of their lack of competition. Organizations often talk about looking for customers who are willing to buy their products but they should add a second qualifier: customers who belong to an underserved market.
There are four signs that you can use to find underserved markets: high growth trajectory, unexpected attributes, amplifying external factors and high dissatisfaction rates.
To see all of these four signs in the real world, let’s look at the 19th century American farmer.
II. The 19th century American farmer
Turn back time to 1880 and you would see an America that was 71.8% rural and where agriculture was 56% of the nation’s GDP. Today, America is only 20% rural and agriculture is less than 1% of the GDP.
Americans had been moving West for nearly a hundred years, a trend that accelerated after the American Civil War ended in 1965 and the introduction of The Homestead Act in 1962. The latter provided a three-step legal process for securing up to 160 acres of land at $1.25 per acre ($38 in 2024 dollars).
Here's where we see our four signs that created this underserved market.
First, high immigration coupled with high birth rates (4.24 in 1880) brought an influx of people into the country. The U.S. population would triple from 31 million in 1860 to 92 million in 1910. The vast majority lived in communities of less than 2,500 habitants. This is a classic high growth trajectory.
Second, many of these immigrants had a high level of education. They could read and write and craved more entertainment. It has been said that their only recreation were their funeral occasions. This is an unexpected attribute of these customers.
Third, the railroad system, built during the mid 1800s, gave farmers more options for where to sell their products. Their incomes were rising and they wanted to spend their money. This is an external factor amplifying the other signs.
Their purchasing options were limited by rural merchants who carried basic items at high prices. A barrel of flour sold for $3.47 but rural merchants marked up the price to $7, a 100% percent increase. The lack of options led to high rates of dissatisfaction.
The American farmer wasn't perfect. While they were prospering, their income followed the crop season. They had plenty of cash at the end of it and very little at the beginning. This meant that farmers had to pay for things by credit for most of the year and then settle once the cash came in. Rural merchants had to float these customers for many months, putting a strain on their cash flow and contributing to higher prices.
This underserved market would eventually be exploited by Sears, Montgomery Ward and other mail-order operations.
Let’s now take our four signs and look for modern-day underserved markets.
III. Modern day underserved markets
For a high growth trajectory, let’s look at the 65+ age group in the United States.
Look at how this age group will expand in the next 50 years while other age groups will shrink or remain static. What will this age group care about in terms of products and services?
For unexpected attributes, let’s look at the demand for audiobooks.
Physical book sales have declined slightly over the last 10 years but audiobooks are growing 14.3% year-over-year.
Authors typically write the written version of their books and then record the audiobooks. What if they did the opposite?
For amplifying external factors, let’s look at insurance in a climate change world.
An increasing number of companies are refusing to insure homes in high risk areas such as the wildfire zone in California. What kind of insurance model needs to be created for these high risk areas?
For high dissatisfaction rates, let’s look at the turbulence in employee satisfaction, the so-called “quiet quitters.”
Gallup’s State of the Global Workplace: 2023 estimates that “nearly six out of 10 employees fell into this category.” What can organizations offer to make employees happier?
You likely have plenty of examples from your own industry. Undeserved markets aren’t secret but they are often ignored. If you can see through the challenges, you will encounter a trove of opportunities.
IV: Producing productive conflict to speed up decisions
Here's a short excerpt from Doug, an expert in helping tech teams become insanely profitable. I included a picture of the hamlet mentioned below and be sure to check out Doug’s newsletter.
The tiny English hamlet I live in has only one dead-end road, and sometimes unsavoury people in trailers camp in and near the turnaround for days at a time, holding noisy barbecue parties in the tinder-dry nearby forest and stopping vehicles turning round. My neighbours and I would like to boot these folks out when they "visit", but none of our deeds show any claim to the relevant land and the local government agencies are unresponsive. That didn’t stop me--and it shouldn’t stop you from taking charge in similar murky situations in your business.
Although I too have no right to the land, I hired a local contractor to build a fence around the woods and put up signs that say “No Trespassing”. My unilateral, unauthorised enclosure will have one of two good results. Perhaps someone will show up to complain--in which case I’ll ask her if she would like a free fence! Plus I'll get her phone number so I can alert her to trespassers. The other possibility is that no one will ever complain, I’ll keep ejecting interlopers, and in a few years I can use “adverse possession” (squatter's rights) to legally acquire the property. Either way I get the key outcome I need, which is an end to misuse of the land.
Apply this in your own business by producing productive conflict: when you need a result but no one is "owning" the problem, take a bold and public step yourself to resolve the problem. Invite others to object and discuss with you; you may get a volunteer to take over the fix, but if not, now it's yours to resolve as you see fit.
That’s all for this week!
Talk next week.
Ruben