Business Strategy: “Carving Your Own Niche”
If you have unlimited capital or resource, this article is not for you…
What does it mean for a company to “carve their own niche?”
As an entrepreneur, you may have an intuition that, given your relatively small size, this is the safest route for you to succeed, and to potentially attract investment.
I would say that, in many cases, the intuition is right, but the strategic and operational implications need to be clarified.
In essence, a niche strategy relies on two pillars:
- Specialize in a small-size market where you are protected from large players that compete on price and payment terms.
- Rather than confronting established competitors, focus on specific customers and accept smaller volumes at higher margins.
You should also check two things before you claim that you can build viable and protected niches:
- The market must be small enough. Large competitors have high fixed costs and each contract must contribute to cover them. By nature, they will be less interested in smaller contracts.
- You should build the right set of assets, skills, competences and resources to be a credible player in that market.
Please note that this is the exact opposite of building a low-cost business to eat market share from established players. This is about being better than anyone else to be attractive to clients and justify high margins. (I’m especially talking to my Indian friends, here… )
You can play on several dimensions:
- Technology to match specific needs. Niche ERP systems are tailored for a specific industry or vertical and thus may offer enhanced functionality with less customization than global players. The depth of the solutions offered may justify a premium pricing. However, specializing for new verticals or industries may take a lot of time and development.
- Price adaptation: Luxury goods buyers are limited in number, but they have a very high purchasing power. However, offers intended to the “bottom of the pyramid” also require a high level of specialization. High-end products and services are a very good example of local or global niches where you need to adapt your sourcing, manufacturing and selling to be perceived as the best possible partner and justify high prices.
- Service and relationship to improve customer experience: Easy ordering, pre-sale advice, short and guaranteed delivery time, personalized product or support, are typical examples.
People often say that entering a market where there are already sellers, this is a threat. I tend to disagree.
In a Suk, when many gold dealers sell next to each other, this means that there is a market for gold. But you MUST differentiate.
However, your elected niches may get over-crowded with other niche players! (See the sports cars or the high-end Swiss watches segments…) This is the time to further segment, specialize, and differentiate. A few years ago, organic food was a niche in itself. Today, the market is very segmented, with various types of supply chains, stores, products, packaging, and price levels to meet a whole new set of customer expectations.
Growing a niche business in view of an exit
You may say that, if your niche grows, large players will be tempted to “invade” your niche to grow their margins.
You may also say that you won’t be able to compete (see how Palm Pilot got absorbed by HP when the PDA/Smartphones demand started to boom).
All this may be true, and this is where your exit perspective may develop. But this will be true only if your elected market grows significantly.
Talk to us to discuss how to build a successful niche strategy!