Niche Markets - When Smaller Is Smarter

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Keep moving another step away from the center of the market. Eventually you'll find a niche which is too small for Amazon.com but may be specialized enough so that it requires considerable expertise for entry. And that's what you have to dig deep into yourself to find... the area you can execute better than most people, a market too small for the giants, but extremely profitable, perhaps because you have the field almost to yourself.

Today almost everyone with a drop of entrepreneurial risk tolerance wants to launch a dot com, burn through a lot of cash, get big in a hurry and IPO. And entrepreneurs are willing to risk their careers and their homes and work until they drop to accomplish that. The problem is there are a lot of really big players with billion dollar pocket books chasing the same markets. What to do? One answer is to think small, or at least smaller. Consider a "niche" market.

Defining Your Niche

First you have to discover what your niche should be. One way to approach this is to zero in on what niche you would excel in, which would make the most of your own special knowledge and talents.Just as Martha Stewart has a flair for elegant living, not to mention superhuman drive and perfectionism, and Debra Fields' had her cookie recipe, you probably have your own unique talents, interests and aptitudes,if you look deep enough.It may be found in your ability with graphics, or your talent for getting an office organized or inspiring people to join your project.Being smart about specific, marketable things has value; it is "the raw materialfrom which financial results are produced". Taking a hard,objective look at yourself, assembling a knowledge and skills inventory, allows you to find your particular niche, something you do better even than others in your same field. It is a way of narrowing and refining your niche so you can focus on only those things you do best and know more about than those around you. This should tell you also what niche market you should target.

Sometimes this happens in a more evolutionary way. You set up a dot com on the Net to sell books and the next thing you know, Amazon.com turns into Godzilla, about to stamp you under his giant foot.Do you stand there, stare Amazon.com in the eye and go head to head in combat? You do no such thing. You think through your best niche and move a step in that direction. Let's say you start marketing rare old books. If Amazon.com moves in that direction, you start marketing rare old books on Texana, a quite profitable business, believe it or not. In other words, you keep moving another step away from the center of the market. And eventually you'll find a niche which is too small for Amazon.com but may be specialized enough so that it requires considerable expertise for entry. And that's what you have to dig deep into yourself to find... the area you can execute better than most people, a market too small for the giants, but extremely profitable, perhaps because you have the field almost to yourself.

Using the niche concept, you have positioned yourself for success. And there are other benefits in a business model which is a bit smaller on the Net:

Speed
On the Net, speed is one of the critical ingredients. Many entrepreneurs with complex business plans addressing numerous facets of a problem are urged to pare their plans down to a single solution so they can execute fast. A niche market is simpler and speedier to execute on than the entire spectrum of a marketplace.

Energy
You can avoid those 100 hour weeks and pulling those all nighters. Niche markets, which are smaller and have less competition, are usually more managable and forgiving of split second deadlines.

Expertise
Not only do you have "the right stuff" for being in your niche, but, by being more specialized, your field will be easier to keep up with.

Money You may able to get your business up and running for $5 million instead of $25 million. For the answer to why, read Marketing, below.

Marketing
Today, it routinely costs dot coms $20 million to go out and build a nationwide brand name fast. ( And that doesn't count a dime of what it takes to build the business itself.) If you are specialized enough, you don't have to build a brand name of that magnitude. If you're the only one or one of a few who has your product or service in that niche, customers will come to you. Better still, your brand name competitors may be the ones who send them, trying to keep a regular customer happy. So, to the extent their $20 million expenditure expands and energizes the market, you reap some of the spill over benefits.

Financing
Thinking smaller may also be a good way to approach your financing.

Bill Reichert, president of Garage.com,which raises money for dot com entrepreneurs, recently spoke with Red Herring about "Ten myths and realities of Venture Capital". Reichert counts as one of the top myths:" Venture capitalists fund startups.

The reality: Venture capitalists fund established companies.
Angel investors fund startups."

Reichert's point is that you may get unduly discouraged if you want to play with the big boys too soon. Hit on your family and friends first, he says. Most venture capitalists suggest you prove up one part of your plan at a time, going back for more money, each time you've proven up a critical piece of your plan. Start small, keep building, look good before you go to your first small VC. If you keep excelling, pretty soon the big VCs will want to join in.

Stay Focused for the Long Haul

Getting financing is only the first of many problems you will face. Business is about problems. You will have problems to solve day in, day out, every day you are in business. Your job is to solve your company's problems.If you've established the size of company you are comfortable with, and are targeting a marketplace specialized enough to create a barrier for a lot of companies with less experience and expertise, you will be able to remain rested and energized enough for the long haul. You will be in a position to solve those daily problems and keep advancing towards your goal.