Startup entrepreneurs find large markets a big draw. But big potential comes with intense market competition, something that won’t be easy for most small firms to handle.
Just look at what happened in the O2O beauty service apps segment in China.
The year 2013 marked the start of a rapid development period of this sector in mainland China. Various providers sprung up across top-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen.
A casual glance reveals hundreds of firms offering a variety of services, from manicure to make up service, hair cut on demand to massage outcall service, even plastic surgery.
In 2014, as many as 140 related startups were established.
But in just one year, a bankruptcy wave is looming, as Hong Kong Economic Journal blogger Chung Yan noted.
Lifashi, Shishangmao and Namiwang all closed down earlier this year.
Even though many O2O (online-to-offline and offline-to-online) apps are backed by large venture capital firms, the low entry barrier and proliferation of similar apps combine to create a very unfriendly business environment.
Very often, the only way to grow customer base quickly is by offering aggressive discounts. Distribution of e-coupons or so-called red packets is one of the popular ways.
But this approach is expensive. Besides, there is no assurance of customer loyalty as price-sensitive consumers will easily move if another firm starts handing out cheaper offers.
To stand a better chance of survival, Yan suggested that startups should follow Paypal cofounder Peter Thiel’s advice—pick a small but fast-growing market and become the dominant player there.
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