I’m a huge fan of niches. I think having one or more niches that you work with is the secret sauce in making a good business great. If you’ve been able to develop a niche business you know what I’m talking about.
If you haven’t put a niche together yet you will want to think about why. Companies with a niche focus are often able to charge higher prices and usually have less cost in operations.
This is because niche businesses are recognized as experts in their field. They do similar things with their customers and have a lower cost of service than many of their competitors. The combination of these two things will often lead to outsized profits as compared to their competitors.
The first step is to find a group of customers who are similar with a market small enough to dominate. This often means that you will start with one market segment and then drill down to find an even smaller group that you can service.
An example might be an insurance agency that concentrates on insuring private jets. This is a relatively small group of people. If you become an expert in this segment it’s likely other private jet owners will find you. When you speak with owners of private jets you will know the buzzwords they use and be able to speak a jet owner’s language. You will be able to bring knowledge of risks with jet ownership that others who aren’t experts won’t know.
In our example of jet owners you might even want to drill down to a smaller group. You might specialize in Citations or Lear Jets. There will be some differences between the needs of these two groups of owners and knowing what they are can show your expertise.
Drilling down to find the smallest group you can makes it easier to be identified as the go-to company for that group. That’s the goal in dominating your niche.
Next make sure your niche is a fragmented market. If there already is an insurance agency that specializes in Lear Jets or Citations you might want to look at another brand. If there is an insurance agency that dominates in both markets then you’ll need a different niche.
It’s really hard to remove a dominant company from a particular niche. They likely are niche players themselves and have spent years learning what makes the niche they serve different from other risks that could be insured.
Finding a fragmented market, meaning one where there is no market leader, allows you the opportunity to put together a plan for your company to become the dominant player. When you make yourself the leader in your market segment there will be no one that remove you, or if they do it’ll take a big mistake on your part.
Become an expert in your micro-niche. Once you decide that you want to enter a particular niche that is small and has no dominant player you will want to become the expert on what you offer. You will need to read all of the trade journals, go to all the meetings you can find, read all the books on the subject, and find leaders in the market segment to adopt as mentors.
Becoming an expert is hard work. Choosing a niche is just the first step. As you work with people in your chosen niche you will find subtle differences between other parts of the industry you’re in. The needs of these people will be just a little different. When you understand those needs you can short circuit your sales and service cycle by helping your potential customers know what they need before they realize there is a need in the first place.
I’ve been a niche-aholic for years. I recommend working in micro-niches as the best way to build a business that is hard to compete with. Once you learn how to dominate one niche you can use this knowledge to move to several niches.
This will create real enterprise value in your business. Eventually someone just might make an offer that is too good to refuse. You might not take the offer, but having a business with real value is a good place to be.
Being a nicheaholic is one of the signs of companies who have extraordinary performance. Take our quiz on whether you’re a nicheaholic. In five minutes you’ll get a read on how far you and your company are down the road of developing a strong niche. To take our quiz click on the button below.