The answer you ask? Is with out any hesitation, going after a larger market share in a smaller market.
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Establishing dominant market share in any market segment provides you with a competitive advantage. You cannot successfully compete if you only own 2% of $100 billion dollar business. While on paper, $2BN in revenue looks great; your ability to sustain any competitive advantage is slim to none. Companies with small market share typically do not last very long and have high turnover. Market leaders stay market leaders for several key reasons.
As a market leader, you have a competitive advantage over smaller and emerging competitors. You have more money, more resources, more customers, and a brand that customers not only recognize, but trust. However, emerging firms that focus on an exclusive market segment or niche provides themselves with the opportunity to fly under the larger competitor's radar and establish themselves in a smaller, albeit profitable market segment. Wal-Mart is the market leader in discounted retailing. No company will be better or bigger than Wal-Mart in discount retailing for the household items that they sell. Target followed Wal-Mart and built a successful business by focusing on a different market segment than Wal-Mart. By providing slightly higher-end products, but still at reduced prices, Target established itself as the leading discount retailer for higher end household goods.
Large markets can be sliced and diced into numerous sub-segments as shown in the Wal-Mart and Target example above. It is critical that you identify the sub-segment (or even the sub-sub-segments) that you are focused on targeting and clearly understand why this market segment is the right one to go after. What are you offering this market segment that isn't currently offered to them?
Edward Jones Brokerage Firm established a dominant market position in a smaller market segment that defied Wall Street firms like Goldman Sachs, Morgan Stanley and others. By focusing on serving middle income consumers who lived in rural areas rather than wealthy clients living in large cities, Edward Jones catered to a client group that had previously been ignored and have been handsomely rewarded for doing so. Another example is Allegiant Air, who is the only profitable airline this year in the U.S. and is exclusively focused on flying to cities that no other airline flies too. They own nearly 100% of the markets that they fly into and as pointed out in the first paragraph, being the leader in your defined market segment allows you to extract greater profits, which no other US airline has done this year.
As you consider your business plans, start by understanding what market you are targeting and how you will target them. Understand how you will gain leading market share in the market segment that you have defined. Don't tell yourself that you are going to be the next Wal-Mart or Google, rather tell yourself that you are going to be the Wal-Mart of high-end shoes in the pacific northwest or that you are going to be the next Google of target marketing for physicians. Be specific, narrow your core market segment, and go own it.