Hong Kong is an ideal market for tech start-ups. According to InvestHK, as of January 2024, there are approximately 1,000 fintech start-ups in Hong Kong, and more than 10 unicorns (start-ups with a valuation of more than US$1 billion) have established their headquarters in Hong Kong. The main research focuses of start-ups include: information and communication technology, software as a service (SaaS), Internet of Things, data analytics, biotechnology, artificial intelligence, robotics, virtual reality (VR) and augmented reality (AR), and new materials.

After a tech start-up has established a foothold, how should it expand the market? The following will use the technology industry as a case study to analyze its market expansion strategy.

Tech start-ups can expand their markets by creating niches, further expand their scale with transitional business models, and then use non-linear competition to evolve niches into a fixed market.

Step 1: Unique Micro-niche

The technology market is often dominated by several super platforms, and start-ups need to discover and identify the unique micro-niche to avoid competing with large platforms. The micro-niche then slowly developed into fixed markets.

Purpose: To avoid direct competition with larger, more established companies.

Note: Pinpointing the micro-niche with specific and established enough potential customers.

Real case: Beyond Meat’s target customers are not general “vegetarians”, but specifically target the niche market of “meat lovers looking for plant-based alternatives that taste like meat.” The products are designed to mimic the taste and texture of meat, appealing to vegetarians and meat eaters who want to reduce their meat consumption.

Step 2: Transitional Business Models

Technology companies use transitional business models to enter new markets (usually micro-niche). On the one hand, they gradually increase market appeal, gain reputation, and verify market response. On the other hand, they can obtain the required funds. This helps shape long-term vision and scalable business model.

Purpose: Validate the business concept, secure initial capital and refine the long-term vision.

Note: A product or service may be offered to individual customers or specific markets first, before being fully rolled out to the market.

Real case: Airbnb’s initial target customers were a small group of people who went to attend meetings in other places and needed accommodation. It started by renting out air mattresses in apartments (hence the name “Air Bed & Breakfast”). Later, after verifying this business model and obtaining initial capital, it transformed into a platform for renting out houses or rooms to tourists.

Step 3: Non-linear Competition

Direct competition refers to comparing other similar companies in the same industry, such as comparing Netflix to other streaming services. Indirect competition focuses on core assets and value. For example, Netflix’s main asset is to obtain customers’ attention. From this perspective, Netlfix should be compared with other services other than streaming media, such as TikTok.

Purpose: Identify potential threats and opportunities beyond direct competition.

Note: Understand the market, surpass your direct competitors in the industry, and attract the market in a different way.

Real case: Initially Netflix may view its main competitors as other DVD rental services, but with the shift to streaming, the competition has become more diverse, ranging from other streaming platforms such as Hulu, to cable TV, to video sharing platforms such as YouTube , and even video game platforms, all platforms that are vying for the audience’s attention.

Step 4: Business Scaling

Business scaling is the process of business transformation. After the product and market potential have been widely verified, business scaling means targeting and entering individual market segments, and gradually orienting the product to more and more market segments. At this point it is crucial to launch attractive products and establish a viable business model and organization structure.

Purpose: Expand the market, increase revenue, and establish market share.

Note: First focus on gaining word-of-mouth with a subscription model in a niche market, then target a wider market segment and develop different services and products to further penetrate the mass market.

Real case: Spotify originated in Sweden, targeting a niche group of music lovers looking for legal streaming of music. Once its subscription business model is successfully verified, it enters other European countries and the US market, and then develops diversified products.

Fact Sheet: Hong Kong Fintech Landscape (hongkong-fintech.hk)

https://www.hongkong-fintech.hk/zh/insights/news/news-2024/fact-sheet-hong-kong-fintech-landscape