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How a Thiel Fellow Won Over the Trade School Industry
Use this strategy to gain traction for your startup
Brian Bourque
December 24, 2022
Today we're going to talk about wedge strategies.Ā
We'll hear from Luke Sophinos, founder of CourseKey, on how he used a wedge product to disrupt the trade education industry with his vertical SaaS.
Quote of the Week:
"Good startups, however, think about the whole wedge from the start. They build an initial user base with simple features and then quickly iterate to create products that are enduringly useful, thereby creating companies that have stand-alone, defensible value."
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What is a Wedge Strategy?
A wedge is a business strategy to gain a foothold in a new market by using a focused offer or positioning to win a small piece of a larger market.
Using a wedge strategy focuses your efforts on a key point of competitive weakness or market opportunity in a way that maximizes your chance of gaining traction.
"A wedge is a method for spending limited resources strategically."
Some famous examples of wedges:
Geographic wedge: Uber launched in San Francisco and spent its first few years developing in only a handful of key cities. They used concentrated markets to refine their model and create a blueprint that could be applied to other cities.
Demographic wedge: Facebook launched at Harvard and initially onboarded only college students.
Product wedge: Amazon only sold books online at first and then expanded to everything else.
Today we're going to focus on how startups can use wedge products to gain traction.
What is a Wedge Product?
A wedge product is a focused offering that solves a particular pain point for the target market. It strives to solve a painful problem in a novel, lightweight way and thereby gain traction.
Here are 3 questions to hone in on a potential wedge product:
1) What are your customers' most irritating problems that lack good solutions?
2) Could your business develop a compelling solution to one of these problems?
3) Can you make a solution that's easy to implement and carries little risk to try?
[Unicorn with a wedge]
When to Use a Wedge Product
It's very hard to build a product that solves all the needs of a mature market at once. And even if you build it, selling it will be hard.
When you try to do too much at once, your value prop will be too broad and generic.
You can increase your odds by attacking a single pain point and solving it more effectively than the incumbents.
Once you've solved this single but obnoxious or costly problem for a few customers, you'll have:
1) earned their trust - which will lead to opportunities to sell them more services
2) earned their testimonials - which you can then use to push your wedge further into the market via case studies
How CourseKey Discovered Its Wedge Strategy
We spoke recently with Luke Sophinos, a brilliant entrepreneur and Thiel fellow.
Luke founded CourseKey in 2014 at the age of 19 from his college dorm.
CourseKey is a vertical SaaS company for trade schools.
Initially, CourseKey tried building software for traditional education that turned smartphones into learning tools. They quickly realized that selling into the typical university bureaucracy is a nightmare.
While participating in an on-campus startup incubator, Luke and his cofounder learned about a different education sector that had 3 major problems:
mandatory attendance
pen and paper record keeping
no lead management systems
Trade schools are regulated by the Department of Education. One of the ways they monitor regulatory compliance is through attendance. Yet trade schools were still tracking participation manually.
CourseKey created an automated, location-verified and secure way to manage attendance via smartphones. The "attendance" solution became their wedge product. It solved a problem that was painfully manual and had costly compliance implications.
What Makes a Great Wedge Product
Sophinos's view on a great wedge product is that it generally does one of four things:
increases revenue
reduces churn
aids regulatory compliance
saves time
Also, a wedge product should be quick and easy to implement. Your sales hit rate will increase if you can minimize the cost of adoption (time + pain), as well as reduce the potential downside risk (money-back guarantees etc.).
How CourseKey Marketed Their Wedge Product
Once Luke understood that attendance was required and regulated, the sales pitch for their wedge product came together.
They focused on solving the attendance problem with a zero-friction experience.
This strategy helped them get their first customers, which helped them to refine their positioning
Since then they've expanded their SaaS to integrate enrollment, career placement, compliance and other services to over 300 trade schools.
Wedge Strategy Misconceptions
A wedge isn't a one-time strategy: a wedge is a starting point, from which you can innovate and expand on the initial offering.
A wedge isn't the only way to enter a market: in some cases, customers won't want yet another vendor in their crowded stack just to solve a single problem, no matter how important it is. You may need a more robust product to capture a slice of your target market. In some cases it could even make sense to acquire a company to buy your way in.
A wedge isn't an MVP:
While you will likely build an MVP of your wedge product, not all MVPs are wedges and not all wedges are MVPs. You may find that to solve a single massive pain point, you need a highly refined solution or it won't be convincing enough.
š¦ Unicorn Thought:
How can you use the wedge concept to gain traction for your startup?
That's it for today. Tell us how we did:
Shoutout to Cole Bridge for last week's feedback: "An awesome mix of old school ad principles with new age tech. Super helpful examples and frameworks. Good stuff!"
-Brian š¦
PS: I joined Peep Laja on his podcast How To Win a few weeks ago and we talked about using leverage to scale your startup. You can listen here.
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