Target fragmented markets where top providers control less than 60% of the market - fragmentation signals opportunity for consolidation
When an industry's top 10 providers collectively control only 55% of the market (as in SMB payroll), it indicates that no dominant solution exists and many customers are using suboptimal or manual processes. This fragmentation represents a massive opportunity for a well-designed product to capture market share from many small, mediocre competitors simultaneously rather than having to displace one dominant player.
When to use
When evaluating markets where many small players exist but no clear winner has emerged, especially in regulated industries like payroll, insurance, or compliance
Don't do this
Entering markets where one player has 60%+ market share, requiring you to directly displace an entrenched incumbent rather than capturing fragmented demand
1 Founder Who Did This
Top 10 SMB payroll providers controlled only 55% of the market at Gusto's launch, with 3M businesses doing payroll manually and 29% using 10+ year old systems