My First Published Book – Prisoner of Fate Cheers!! Today is the first day of
“If it scares you, it might be a good thing to try” Seth Godin
Being an entrepreneur has its perks, not only is starting a business important for economic survival, it allows the founder (business owners) a lot of control on the direction of the business.
Success for an entrepreneurs is not just about having a viable and great idea, it’s also about how to execute the idea in a way that ensures sustainability and profitability for the business.
Sadly, a lot of business owners will continue to struggle to breakeven, this is because entrepreneurship goes beyond the usual “buying and selling” that most people are accustomed to.
It is a known fact that 95% of start-ups do not survive their first year and the business owners lose money or go broke despite having a brilliant idea. The problem therefore is not a dearth of business ideas, but a lack of fundamental skills and possibly understanding of how to grow a business beyond the ideation stage into the growth stage and possibly even further.
The truth is, there are so many factors that can cause the failure of businesses; from the business strategies deployed, to lack of experience, to a failed/flawed business model, to poor pricing decisions, to inefficient mode of operations, lack of a set of core competencies to compete and to the most popular culprit, lack of funding. The list is not exhaustive.
But, even when funding is not an issue, entrepreneurs still manage to run their businesses aground. Just as some businesses struggle to break even despite a well-articulated strategy and business models. This portends on grave conclusion – that there is clear dearth of knowledge.
Business owners run their businesses ignoring the most important part of marketing – Satisfying a need.
The starting point for any business is to identify an unsatisfied need in a market. This is so important that more than half of founders, though with thriving businesses now, often start because they have the minimum start-up funds to be in the business or because they have seen other owners eke out a living off an idea. They are not driven by the need to satisfy an identified need in the target market.
Once an unmet or unsatisfied need has been identified and tested through a market research (not wishful thinking or yearnings of a few of your friends), then data obtained can be carefully studied to identify the potential target market and to determine if it is a market with the wherewithal to satisfy the need.
There are no hard and fast rules though, but some entrepreneurs put the cart before the horse by first creating a product before looking for a potential target market. Very rarely do they survive past their first year- well except if they unintentionally are able to satisfy a need in that market space.
Always look out for an unsatisfied need! Sometimes the best way to find one is often in the markets served by existing and leading market players. As more dominant players become successful in a business terrain, they often standardize and streamline their business and operational models to allow them to be nimble to serve the demand of the target market.
However, what often happens is that, they stray away from their original concepts and may leave some customers missing out of some value propositions such as excellent customer care service for instance or one-one services or other personalized add-ons which may enthrall or delight the customers.
A start-up can quickly find these unsatisfied needs and create a solution that would steal off a potential niche market allowing its business to thrive right under the nose of the big dominant player.
And Yes, the dominant player has the resources to kill your business and can fight off a feeble challenge from start-ups, but do not worry, until you begin to hit heavily on their bottom lines, you are likely to enjoy an unfettered access to this niche enjoying the privilege of a few.
I must acknowledge that it is practically impossible to address all these issues bedeviling a start-up business in a few minutes read, and so I will focus on one important aspect required to help business owners remain competitive and to grow their businesses in their market space- The Niche Strategy.
Every market has an “under-served” customer and these customers are often willing to pay a premium to get their needs met. It is important to state that this offer must contain something very different from the existing – something new or innovative. This will also allow the business to serve the needs of the customer better as this has been identified prior to creating the product or service.
This is the only way it can translate to a potential higher margins if you get your business model and value proposition right.
A Niche Strategy is put in practice when a company comes up with a product or service that targets a narrow market segment or focuses on satisfying a specific need.
Serving a niche market ends up being less expensive for a start-up as it allows the founder to focus on a small segment of the market rather than the mass market. It is typically used by startups who do not have enough funds for promotion, marketing and sales on the markets with little or no market gaps.
Interestingly, in this segment and with this unmet needs, the competition is often much lower than in a mass market and in a well calculated approach could lead to market dominance.
How to Choose a Niche
This is the next logical question! How can we choose a niche for your business? Let me quickly splurge some of these details here without sounding like a lecturer facilitating a class;
The first step to choosing a niche is to identify the potential Niches available. The great news is that every market has an under-served segment you only need to know where to find them.
Customer niche – This can be age, ethnicity, gender, income level, and lifestyle
Geographical niche – A town, city, region or even an entire country
Customer need niche – This is a very powerful niche because you are meeting needs that existing companies are not meeting. They are not often easy to find.
Product segment niches – organic produce, high end coffee, high breed electric cars
Distribution niche – Most businesses now uses online distribution channels to change the traditional models of existing businesses. This is a rapidly evolving niche as many businesses are redefining the business terrain by changing the distribution channel. Uber and Netflix are classic examples of this.
What to look out for in selecting your business niche
– Make sure the niche is big enough to reach economic scale in order to get enough revenue to become viable and profitable. This would need some research as it is important to meet the needs of this customers.
– Are the customers willing to pay more in order to have this identified need met?
– You need to carefully study and analyse your potential/target customers to determine as much as you can of their lifestyle, disposable income levels, average age, taste etc. Understanding your target market is key to determining the best method to satisfy their needs.
– Make sure you can identify and target your market in an affordable under-the-radar method in such a way that your competitors will not be able to quickly respond to your overtures. This is easily a deal breaker for most businesses. Paid advert or marketing cost is often a huge challenge for most entrepreneurs and this cost can easily skew the books making it difficult to break even. When the customer acquisition cost becomes too astronomical, profits gets wiped out without the founder even acknowledging it.
In my subsequent post I will address a much cheaper and ingenious way to avoid the trap of B2B (Business to Customer) marketing for start-ups as it has a high risk of failure.
The best way to get value out of niche markets
Every business owner should take cognizance of the fact that once your business shows good sign of profitability in your chosen market segment, competitors are often quick to jump in. After all it’s an open market.
It is therefore important that business founders continue to improve their products or services by differentiating and then opening up to new target markets. It is also important that founders make provisions to receive feedback from customers and document same.
Data is big deal in business! It is the starting point for decision making. Every feedback, sales, marketing effort must be well documented to allow for a careful study and analysis to determine the most appropriate response to competition, market dynamics and sales.
The niche strategy permits a phased approach to growing and expanding the business. Once you have captured a particular market segment, don’t fall into the trap of sitting duck and trying to max out your revenues from that segment alone. Move to the next market segment with a similar need.
While you are at it, start researching other segments similar to the one you currently serve, determine their unfulfilled needs and then make changes to your products or services (product differentiation) to satisfy the yearnings of that segment too. Please note that each niche will require different acquisition cost, sometimes a different distribution channel or a different approach to marketing. It is therefore important that a careful study of the segment and their under-served needs is carried out before venturing further away from the shore.
As your business expands, open up more niche markets and grow exponentially by satisfying unmet needs. This approach is guaranteed to help your business grow and become successful.
The opposite of the niche strategy is the attack-the-core strategy/mass market strategy where your products and services are targeting a mass market. This will work mostly for a short time and dominant competitors in the market will fight off new entrants to guard their market share. Asides, mass marketing is ideal for products that are considered commodities (a commodity is a product that is similar to the competitors’ product and satisfies the same customer need. The customer perceives no difference in buying from any of the sellers and is therefore price sensitive)
It is often said that entrepreneurs, especially start-ups should not venture into an industry where the market share of the 4 largest firms or competitors in the industry account for about 80% of the market share (the concentration ratio).
The mass market is easily a red ocean with intense competition along with lower profit margin and many times less profitable for businesses that are keen on growth. Erving this market limits the capability of the business owners and stifles creativity.
Don’t fall into the trap of the traditional “buying and selling” or opening a business shop to sell commodities for the sake of it, with the paucity of definitive data in our economy, the results of these sort of decisions are often abysmal failures or at the least, stagnation.
Embrace the niche strategy to building your business and apply proven techniques that have opened up new markets for many successful businesses the world over for centuries. The thought processes are still the same and the results have shaped the lives of many entrepreneurs the world over.
Dare to be different!
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