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Most successful small businesses achieve success not by attempting to cover all areas of a market, but rather by dividing the market demand into smaller, more manageable market niches.
How do you determine what your niche will be? Sometimes it may be as simple as considering what has and hasn’t worked well in the past. Is there an area of service that’s been overlooked by your industry? Are there products or services which could serve a market better than what may already be on offer? For small businesses, the key is to offer a specialized group of goods and services to a specific group of prospective buyers.
How do you figure out what your business is best-suited to provide? Careful market research is a critical component of determining your niche. For example, a small business entrepreneur interested in opening a bookstore might want to consider what book resources are already available in their given market. Are there several chain bookstores? How many libraries are in the immediate vicinity? What’s the demographic of the surrounding community? Are there a lot of children in the community? If the community is heavily populated by young families, perhaps there is a need for a children’s bookstore. If not, perhaps what the community really needs a used bookstore. When doing market research, it’s important to see both what isn’t there as well as what is there. In short, building a niche business means understanding what needs have yet to be met by the existing market place.
Another example: Medical instruments used to be sold in bulk to both small medical practices and large hospitals. One firm realized that the smaller practices could not afford to sterilize instruments after each use like hospitals did, but instead simply disposed of them. The firm's sales representatives talked to surgeons and hospital workers to learn what would be more suitable for them. Based on this information, the company developed disposable instruments that could be sold in larger quantities at a lower cost. Another firm capitalized on the fact that hospital operating rooms must carefully count the instruments used before and after surgery. This firm met that particular need by packaging their instruments in pre-counted, customized sets for different forms of surgery.
While researching your own company's niche, consider the results of your market research and the areas in which your competitors are already firmly situated. Put this information into a table or a graph to illustrate where an opening might exist for your product or service. Try to find the right configuration of products, services, quality, and price that will ensure the least direct competition. Unfortunately, there is no universally effective way to make these comparisons. Not only will the desired attributes vary from industry to industry, but there is also an imaginative element that cannot be formalized. For example, only someone who had already thought of opening a children’s bookstore could use a survey to determine whether or not a market actually existed for one.
Remember that synergy between your niche market, your core competencies and your passion is critical to achieving success. For example, if you're a successful small bakery that makes cookies by hand, don't be temped by the demand for inexpensive, mass produced cookies. Instead, look for other niches that that better leverage your current customers who are willing to pay a higher price for hand-made quality. |
