Should you be a big fish in a little pond, or a little fish in a big pond? It sounds like strategic wisdom. But as David Maples reveals on The Buck Stops Here podcast, it is actually a trick question—because it assumes you have already won.
The Hidden Assumption
“Dominate a small market rather than compete in a large one” sounds like sage advice. There is just one problem: it assumes you have already become the big fish.
Unless you have a natural monopoly—something patented or invented that has never existed before—you are almost always entering as the small fish. Ninety-nine point nine five percent of the time, you are not starting as the dominant player.
So the real question is not “which pond should I dominate?” It is “where can I actually survive and grow?”
Understanding Elastic vs. Inelastic Markets
Before choosing your market, understand the economics:
- Elastic goods: Many substitutes exist; price sensitivity is high. Think sugary sodas—customers easily switch brands.
- Inelastic goods: Few substitutes; pricing power is greater. Think insulin—customers cannot simply choose an alternative.
A natural monopoly occurs when you control something with no easy substitutes. Patents can protect this position for 16-20 years. Without that protection, you are competing on other factors.
The Hidden Dangers of Small Markets
Small ponds have problems that “dominate your niche” advice ignores:
1. Existing Competition Is Hostile
Small markets already have dominant players. They view newcomers as direct threats to scarce resources. Established big fish do not take kindly to competition.
2. Customers Need Education
In small markets, customers often have not seen your product or service before. You must invest heavily in education before you can sell—a cost that established players have already paid.
3. Alliances Are Unreliable
Other small businesses in the pond are competing for the same limited resources. They will not reliably refer business when it means less for themselves.
4. Networks Favor Incumbents
Existing players have relationships, reputation, and advantages you must overcome from scratch.
The Surprising Advantages of Large Markets
Big ponds offer benefits that small-market thinking overlooks:
- More opportunities: Greater abundance of potential clients
- Less threatening: You are not a perceived threat to major competitors, so they do not actively work against you
- Better exit options: Acquisition opportunities from larger firms at fair valuations
- Talent leverage: You do not need to be the top 1%—top 5% can succeed significantly in larger markets
The Sweet Spot: Medium-Sized Markets
Often the best answer is neither extreme. Medium-sized markets provide:
- Enough resources to sustain your business
- Room to differentiate without threatening established powers
- Balance between competition and opportunity
Leverage What You Already Have
When expanding, use your existing advantages:
- Your established reputation and customer base
- Services related to existing competencies
- Trust you have already built
Example: An oil change company expanding into brakes and alignments makes sense. They have the customer relationships, the facilities, and the trust. Starting a completely unrelated business would mean starting from zero.
Three Critical Assessments
1. Honest Market Analysis
Know your actual market size, whether your goods are elastic or inelastic, and your real competitive position—not the position you wish you had.
2. Brutal Self-Assessment
Entering new markets requires significant effort and risk. Do not overestimate your ability to overcome difficulties that have stopped others.
3. Strategy Matching
Small markets require different tactics than large ones. Survival strategies must adapt to actual conditions, not theoretical ideals.
The Real Answer
The trick question is answer depends entirely on what advantages you bring:
- Celebrity status?
- Family wealth or connections?
- Existing reputation in related fields?
For most entrepreneurs without these advantages, larger markets with more resources often offer better odds—despite greater competition.
Unless you are in that 0.05% with a natural monopoly, focus on honest assessment of your actual position, the true market size, and whether you can realistically grow—not just survive—in your chosen pond.
This article is based on Season 2, Episode 6 of The Buck Stops Here podcast: “Big Fish, Little Pond, or Little Fish, Big Pond?”