While it makes sense for larger businesses to try to appeal to the broadest cross section of consumers possible, small business may be better served by narrowing focus and offering specialized goods and services aimed at target groups of customers. This can allow you to charge more for your products and services and achieve economies by focusing specifically on one certain area, allowing you to become an expert on where the value is.
Attempting to handle a wide market is generally too difficult for smaller businesses. Instead, smaller companies are better served by dividing the potential demand for your business’ goods and services into more easy-to-handle market niches. Once you’ve found the right niches, you can offer highly specialized products and services to select groups of consumers, allowing you to gain more specific knowledge about your customers and serve them better, charging a premium for this excellent service.
What is a niche?
A niches is essentially a specialized market, for example a children’s boutique specializing in clothing for plus-sized children or an accounting firm specializing in financial services for farmers would be niche businesses. In a crowded marketplace, having a niche can separate you from your competitors.
For small businesses, focusing on a niche can be very profitable because focusing on a broader audience may be impractical for smaller companies. By focusing your efforts to appeal to a specialty clientele, you can exploit blind spots in larger companies’ strategies and carve yourself out a very profitable area of business.
When choosing a niche for your small business, there are a number of factors to consider, such as:
Your knowledge: By focusing on an area of business that you’re skilled in or have special knowledge of, you gain the benefit of working to your passion and interests and having a significantly reduced learning curve as you get your business off the ground.
Your targeted audience: Clearly identify who the target audience is for your goods and/or services and what makes them tick. If you can afford it, hire a consultant to do market research on what generational, ethnic and other demographic groups in your target audience want, and how best to market it to them.
Specific products and services: Perhaps the easiest way to create a niche business is by focusing on one specific product or service type within a broader field, or a product or service aimed at one segment of an industry. For example, instead of starting an education supply store, you may start a business aimed specifically at the needs of science and math educators. This specificity of focus allows you to concentrate on serving one set of customers and meeting their needs better than anyone else could. It also allows you to become very well-acquainted with specific products and supply chains, allowing you to become expert in getting the best possible deals for the products you wish to sell.
Advantages of focusing on a niche
For small businesses, focusing on a niche has several attractive advantages. For small businesses just getting started, the narrow focus reduces your costs in acquiring new products or developing services. As your business expands or as you discover new potential niches, you can add products or services, but the narrow focus at the beginning helps you keep your costs low, a major concern when you’re starting up on a limited budget.
Focusing on a specific niche and providing excellent products or services differentiates you from larger, national chains who may move into your area. While customers will know they can get “a” door frame from the local big box store, if they want to get “the” door frame that’s right for their home, they’ll need to come to your shop.
One way to market your niche is by including it in your business’ name. Having a name identifiable with your niche allows potential customers looking for your services to immediately identify your company as one they may be interested in checking out. Choosing the right location can also be important to your niche, as convenient locations will help you to better serve your client base.
Research is key to the success of a niche business. If you can’t afford a consultant, do the homework on your own. Get on social media sites and do a poll of your friends and acquaintances. Identify a core group of customers and ask them directly about what they need. Find out who your potential competitiors are and find out what products and services they don’t offer or do a poor job at handling.
With an effective niche strategy, you can take advantage of the needs of a specific customer group to insulate your business from big box stores and provide excellent products and services that you can charge a premium for.