Small business BIG growth®
Words by John Di Natale, BIGthink! Founder and Managing Director
How to tell if the market has legs…
It’s the stuff entrepreneurial dreams are made of – stumbling upon a niche market opportunity and creating a new, lucrative business as a result. You will often hear someone telling wide-eyed tales of the endless money just waiting to be made if you invest in the niche they have discovered.
They may well be right. There may be a gap in the market. As a potential franchisee, an important part of your job is to determine is there a market in the gap? Can a profitable, sustainable business be built to service the needs of that niche market in the medium and long term?
What is a niche – and what is a niche business?
A niche is a small space. In a business sense it’s a distinct segment of a market. By definition, a small segment – you’re not going after the whole market, just a particular part of it. The alternate interpretation though is to look at niche from a product point of view. The finance industry for example is huge, but a number of businesses have carved out a space for themselves with a specialist offer – invoice factoring or finance tailored specifically for restaurant equipment for instance.
In many respects, going after a niche market in less risky now than it was 20 years ago. If you choose to produce hand-made jewellery for instance, and operate from a retail store in your town, you were probably lucky to survive. If one percent of the town’s population is interested in your product at any one time, sales are not likely to “go through the roof”. Given the changes in technology and shopping habits, easy access to information and buyers’ comfort level with shopping online means that now, you may still be catering to one percent of the market, but if your market is worldwide you can have a very successful business.
Promoting your product to its niche market all around the world has never been easier – or cheaper. You can target more effectively and build a following in ways that early marketers only dreamed of with social media, websites, landing pages events and promotions. And by doing so, you can establish yourself as the expert in your field; the business that understands, relates to and can meet all the needs of its target market.
From handmade stationery, to scented wedding candles, small business owners are finding that being recognized as a specialist, building solid brand value and creating a unique customer experience are catalysts of success for niche operators. Broader trends are driving substantial changes to buying preferences. Awareness of what constitutes good, healthy food for instance, is higher than ever. If the middle-aged man next to you in the supermarket analyses the contents of the muesli he is buying for ten minutes, it hardly raises an eyebrow.
There is a much higher awareness of what constitutes “good” food and a healthy diet. There are very profitable operations that focus specifically on gluten free foods for instance, for which demand seems to have grown rapidly over the past few years. Partially perhaps because gluten intolerance has been better diagnosed but also because some people consider eating gluten free a healthier choice.
The desire to live a healthier, more active life is another broad trend that has hit the mainstream and become a bit of a business freight train in the process. All kinds of businesses are now aligning themselves with this driving desire. 24/7 health clubs, personal trainers, dieticians, counsellors and gurus of every description have established successful business on the momentum this trend has created.
So, there are niche opportunities worth pursuing. If the franchise you are considering claims to be in a niche market, there are some important things to consider however, before diving into a franchised tub of frozen paleo bio-dynamic gluten free ethical yoghurt!
Is your niche business new, or just new to this market?
If the business you’re considering is truly unique and targeting a previously un-tapped market, the potential may be higher, but the risks will be too. Look for relevant market research for the demographic you are appealing to: professionals, business owners, stay-at-home mums… to see what trends could potentially affect your business. If the business is brand new, you may have to take a leap of faith and jump in. This is where you need to pay attention to your intuition or “gut feel”. If it makes sense to you in terms of what you know about the market and your customers preferences, well and good. If on the other hand, it looks too good to be true, as the saying goes, it probably is.
Use some comparative analysis to assess how the business might fare here. Does it exist in the US for example? If it does, look closely at the market it serves. How big is that market, what are the characteristics? If those same characteristics exist here, you may be able to draw some conclusions about the potential of your business to succeed. Has the business shown a continuous growth curve or have the past couple of years looked like it might be going backwards? Check to see whether this is reflected in similar businesses, which might suggest the market is in decline, or whether other businesses are still growing which might reflect a poorly run operation.
What’s your passion?
It’s all very well to talk about the niche opportunity, but if the business you’re buying doesn’t excite you, my straightforward advice is, don’t buy it. It may appear to be a great opportunity but it’s going to wear thin, usually very quickly, if ultimately you don’t look forward to going to work because you don’t have the passion for your product, your people, and your customers. So, find something you really believe in and enjoy. Here’s a little exercise you can use as a litmus test; imagine telling your best friend about the business you’ve just bought and how excited you are about it. If you can’t do it convincingly, I suggest you look for something else.
What is the broader sector doing?
There is a huge amount of information at our fingertips – more than we could possibly absorb in fact, so in between watching funny cat videos, put the net to some good use and do some solid research! What are the emerging trends that have the potential to foster businesses that grow significantly over the next ten years? Talk to your friends, business colleagues and to other franchise owners. All sectors start by emerging, progressing toward maturity, and then into decline and there are substantial financial opportunities at every stage of this cycle. The question is how long this process takes. If your product or service is a fad, then this happens very quickly. We’ve seen many business concepts that have come, been popular, then disappeared as fast as they got here.
If your niche is in a sector that is ultimately on the decline, it may not have the longevity you hope for. Sectors that have enjoyed longer-term positive trends are health and wellbeing, aged care, children’s products and services, food, hair and beauty, leisure and fitness. Spend the necessary time in your due diligence process understanding the trends that your business will be affected by.
A niche business is not the same as a fad or a novelty, in which interest will wear off over time. Niche businesses have the ability to connect in a deeper, more meaningful way with their customers and as a result, become successful sustainable enterprises. Your passion might be for building custom letterboxes or providing drug-free therapies for stress relief. If you successfully align your passion to a niche that hits the market sweet spot, you’re well on your way to success!
JOHN DI NATALE
John is the Founder and Managing Director of BIGthink! Business Booster and Axis Advisory, and a highly sought-after business growth specialist and speaker. The BIGthink! Business Booster team works with business owners to help grow a more exciting, more profitable and more rewarding business.