Techblog
Do startups need to go niche to gain a competitive edge?
Identifying a niche market that your business can tap into can be extremely lucrative, but it is not the sole way to establish a thriving business. Here are some of the pros and cons of going niche.
For any entrepreneur looking to create a thriving business from the ground up, finding a way to provide your business with a competitive advantage should be the first objective. One of the most important ways to give your business that competitive edge is to find the niche where your business can best use its skills and become the dominant player in that market segment. However, finding or creating that niche should be the goal for your business, not the starting point. The hard work in establishing a strong business is getting to know the market your business operates in, where those lucrative gaps in the market are and how your business can take advantage of those niches.
Entrepreneurs wanting to find the niche where their business can prosper should consider some of the positives, and potential negatives, of focusing on a niche market. The better your understanding of niche market strategies, the greater benefit your business can take from them.
First mover advantage
One of the most obvious benefits of focusing on a new market segment is that it can give your business the chance to establish itself in that niche before more established players become interested. Startups can benefit from their size, moving quickly before larger and more bureaucratic competitors are able to act. If your business background is in the same sector and you believe you have a good understanding of your market, a strong focus on a new niche market can be a great strategy for your startup.
Taking advantage of poorly served niches
This does not mean your business has to ignore market segments that have existing players. If you can identify ways in which a niche market could be better served, you may even benefit from not being the first mover into that market segment. One pitfall of focusing on a niche is that if a business does not understand exactly which market segment it is targeting, it can give competitors a signal that there is an opportunity available. If you can identify such a market, you may have a ready-built customer base that will respond strongly to a startup that addresses those weaknesses in your competitor's offering.
Don’t let your niche strategy blind you to opportunities
However, putting all your hopes on one roll of the dice is inherently risky. If you focus solely on that one niche, you could be ignoring chances to take advantage of other market openings. The balancing act of maintaining focus on a niche while being open to other opportunities is of course difficult, but it should be seen as simply part of getting to know your market and your customers.
Is your business at the right stage for a niche strategy?
The value of having a niche strategy can vary over the lifetime of a successful enterprise. At the beginning, when the business is still a startup, it is likely that you will still be trying to understand which niche can best benefit the business. At this point, there is still the opportunity for a business to alter which market segment it will focus on depending on how the market reacts. When a business has established itself and grown beyond a certain size, it may also want to reduce its focus on a particular market segment, again to take advantage of other potential market segments.
It is when a business has weathered the difficult initial period and gained an understanding of the market it is operating in that focusing on a niche brings the greatest rewards. While some successful entrepreneurs wish they had focused on their niche earlier in their careers, they may be forgetting that it is their previous experience that has given them the insight to choose a successful market niche.
Create your own niche
Identifying a niche market that your business can target is of course effective, but it is not the sole way to establish a business that thrives in its own market segment. Innovative businesses and market sectors do not always have easy births. However, if you have a strong belief that a product or service deserves to have a market and you are willing to commit to your business and the customer base you want to create, you may be able to forge a new market segment yourself.
Focusing on a niche market is a powerful tool for businesses, and one that can be used effectively by startups. However, it is only one of the tools available to budding entrepreneurs. Without a similar commitment to other aspects of your business that can provide a competitive advantage, particularly providing value to your customers, niche market strategies can act as blinkers. A business that focuses on providing the best service or products to its customers will naturally move towards a niche, but being aware of the importance of market segments can help your business find that niche as quickly as possible.