"Niche” Doesn’t Mean Small

Table of Contents
Primary Item (H2)

Quick Takes:

  • Don't confuse niche with small
  • Lifestyle businesses can be lucrative, too
  • Don't think of a small business as having a ceiling
  • Start a lifestyle company that has the ability to be as big or as small as you want

Something happened by accident. I wish I could say that it was planned. Of course I, like the rest of us, have been flying by the seat of my pants, following a path that’s rewarding, but as to what the reward is, I’m not quite sure.

That’s how everything begins: whether it be in business or in life, you start down a path with a general feeling of “good,” but the end result remains largely unclear. You know that the juice is worth the squeeze, but you don’t know how much juice there’ll be.

When I started out in business, all I was looking for was a freedom. I wanted out of the corporate lifestyle and an in with the location-independent entrepreneurs. I wasn’t trying to raise money or start the next Facebook; all I wanted was a lifestyle company that would allow me to work from anywhere in the world.

Is that too much to ask?

So, after a few years of listening to podcasts like Entrepreneur on Fire and reading contemporary business books like the 4 Hour Work Week, I bought into the notion that a business in today’s economy needed to be niche. It needed to solve a very specific pain point for a very specific set  of clients or consumers.

To me, that meant small. It meant that in order to start a successful business (in my case a B2B business), you'd have to service a small amount of clients in small or obscure industries. Think an app for beekeepers.

But what would an app for beekeepers do? What pain point is it trying to solve? And, if the pain is really there, how many beekeepers are there ? How many of them are feeling this acute pain?

Maybe there’s a business idea in there somewhere, but I’ll venture a guess that the market potential would be small, and therefore the ceiling on your business would be low. Niche might be good, but in business, small normally isn’t.

So how can niche businesses not only be all the rage, but also be wildly successful?

I’ll tell you, when I started thinking about business, I couldn’t have answered any of these questions. But that’s the point I was making above: you don’t always know how things are going to end up, only that there’s an opportunity worth pursuing.

So, when I saw a need in the wine industry for better advertising, I thought to myself “that sounds niche enough to me.” To fill that need, a wine-specific advertising agency was created.

Essentially, we took a ubiquitous marketing service and brought it to an underserved market. The wine industry was begging for a new advertising channel, and we had the solution.

So, taking even more advice from the business podcasts and blogs of the world, and after a few failed thought experiments, we started picking up the phone and cold calling. We took a leaf out of The Foundation’s book and tried to validate our idea with decision-makers. And boy was it validated, but as we know, there’s a large gap between interest and actual payment.

We quickly found that while seemingly everyone was intrigued by our idea, most of them couldn’t afford us. To drive the branding our clients wanted, we had to advertise at scale, meaning to work with us you had to buy in volume. Before too long we realized that a lot of wineries out there just wouldn’t be our clients.

And they shouldn’t: they can’t afford us and we can’t help them, and therefore it’s mutually beneficial not to work together. Get to the “no” faster. The only thing worse than a firm no is a firm no after a time-wasting multi-month sales cycle. Anyway, throughout the process, we've uncovered some basic takeaways that help when starting a small business:

Takeaway #1

The first takeaway we had was that we weren’t as niche as we should have been.We had cast too wide a net. But wait! I thought niche didn’t mean small? Hold on, bear with me!

We had to redefine our ideal client. It was no longer a winery like we thought, but was now a winery that had money to spend on advertising and were willing to take a chance on - what was to them - a new advertising medium. Remember, the wine industry lags innovation, and while people have been working with this advertising channel for years, it was new to them.

Takeaway #2

Here’s where we got lucky, and here’s the second takeaway: niche might be small in terms of the number of clients, but it doesn’t mean small in terms of dollars. 

What we had lucked into, or whatever you want to call it, was that our niche market was small by the number of clients, but large in dollars. The wineries who were most likely to benefit from our services were the same wineries with large brand marketing budgets.

Have you heard of the company that makes Sheryl Crow’s jeans? Highlighted in the book Small Giants, this company had an extremely small amount of clients, yet was a multimillion dollar company. Why? Because the business owners focused on servicing extremely high value clients. In fact, if they were to service more people, it would actually cheapen the value of the brand.

So these business owners made a conscious choice to reduce the number of clients to increase the revenue. It would have been totally possible to create a jeans company that serviced celebrities in general, or even the general public. But if you’re trying to be niche, it pays to be selective, literally.

Takeaway #3

And then something else happened, and in retrospect it should have been obvious. Once we started working with these high powered clients, other wineries started to take notice. Even those who had passed on us before were now interested in our services. Our deliverables had proven valuable enough that suddenly more wineries had budget to spend.

That’s how it happens: it’s a herd mentality, in any industry. No one wants to do something new until everyone wants to do it. And when you convince the top dogs to do it first, well, that’s just incredible validation.

So takeaway #3 is that your niche market is just an entry-point, and doesn’t define the size of the overall market. Once you niche down, you can expand out.

Take Uber, for example. The company started as a black car service for the 1-percenters in San Francisco. Many investors passed on the company because the perceived marketplace was small. How many major cities could you service the top one percent? Isn’t “one percent.” by definition, too small to invest in?

What many people didn’t see, however, was that this was an entry point. The market was anyone who needed on-demand rides, not just the one-percenters. But in order to gain traction, Uber had to start with a specific market, so the message wouldn’t get convoluted.

And that’s what it comes down to: niche doesn’t mean small, it means specific. 

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