There's a solid strategy to compete in a very crowded market that sort of has it's roots in the "differentiate or die" era. However, product-centric differentiation is just that - all about the product, not the customer.
These days, the way to penetrate a crowded market is split the crowd. Narrow the scope and fire the rifle.
If I were to start a tennis shoe company marketing running shoes to people, I am probably not going to be successful with the shotgun scatter. I have no target customer so I can't really tell any story, and the industry is filled with major players.
But if I decided that I was going to sell running shoes to six toed people, well, that's a different story. I can go find the World Association of Six Toed People, and find a very concise list - and prepare my marketing accordingly.
BUT WAIT... ISN'T THAT SELLING OURSELVES SHORT? THERE ARE FAR MORE RUNNING SHOE BUYERS OUT THERE BESIDES SIX TOED FREAKS OF NATURE! (no offense to readers with six toes intended - but our DNA does sort of indicate 5 per foot on a widely proven basis)
Well, yes. However, your message will get lost. You aren't going to compete against bigger players because you don't have the budget or the brand.
However, you can make sales just like the big guys - one at a time. And when you saturate your tiny niche, you can move on to another tiny niche... running for lesbian horticulturists. Or something.
Eat the elephant, one bite at a time.