Okay it might be hard for me to prove it had fans. I'm basing that statement off my lossy memory of various interviews with the founders. It's possible it was almost no one but them, but I think it was at least a small number of genuine users.
Another very similar example:
Wrigley's Chewing Gum used to sell soap, which people wanted, and he'd give customers some free gum as an extra. He realized that he could do a much bigger business in gum itself.
There're lots more examples from the histories of many of the fortune 500:
Apple Computer made something that few people wanted (the Apple I - hobbyists) to something that a few more people wanted (the Apple II - schools) to something that a nascent industry needed (Macintosh - desktop publishing) to finally something that every teen and 20-something has to have (IPod).
Microsoft made something that very few people wanted and that you generally can't sell today (programming languages) to something that one crucial customer wanted but didn't pay much money for (PC-DOS) to something many OEMS wanted (MS-DOS) to something many consumers wanted (Windows) to something every business in America needs to have (Office).
3M made something nobody wanted (anthracite) to something a few people wanted (sandpaper and other abrasives) to something a few more people wanted (waterproof sandpaper) to something many consumers wanted (scotch tape) to something almost every office uses (PostIt notes).
Hewlett Packard made something a niche market wanted (oscilloscopes) to something a somewhat broader niche market wanted (electronics testers) to something a rather more lucrative market wanted (workstations) to something a broad consumer market wanted (PC clones) to something that most every family and office has (inkjet printers).
I really wish we could see more about slower, incrementally-growing companies. Smash hits like Netscape and Google are rare - most of the companies that we hear of today got their foot in the door, then used that to expand upwards into bigger markets. I wonder if Microsoft would've gotten YC funding if YC had been around in 1975: I can see them getting back a little note with "Interesting idea, but most of your users can write their own BASIC interpreter. Also, you'll probably end up going back to Harvard at the end of the summer."
I think we would have actually funded them. I realize that's a lot to claim; certainly most investors wouldn't have; but YC was created explicitly to fix that problem.
It would have worried us that Bill might go back to school. (In fact, he did go back to school that first fall, then changed his mind.) But we do fund undergrads if they have a take-over-the-world vibe, like Sam Altman and the Weeblies, and I think Bill would have had that.
+ It doesn't necessarily take more effort to build a product that lots of people want vs a product that very few people want.
Again, sounds obvious, but I see lots of startups exercising huge effort to build complex products against very small markets.
+ We all suffer from hindsight bias -- for every Apple, Microsoft, 3M, and HP, there are thousands of companies that screwed up the progression you're talking about and failed that we've never heard of.
It predates a lot of things, but says so much that makes sense, and that I recognized from other people's writings (PG included). It's worth buying. Of course, being from the 80ies, and talking about a garden tools business, it doesn't talk about high tech much, but I think a lot of the lessons are quite worthwhile.
I think that's sort of what Marc was getting at.