Why You Have to Concentrate on a Niche Market

Every week, I mentor clients wanting to start a new business. Many want to be part of a well-established industry in the hope of getting a share of the large pie. However, this is often a horrible strategy. Most business owners would be better off focusing on the smallest viable market segment, known as a niche market, than targeting a broader audience.

One of the problems that I have with kids attending college after high school is that when they complete their education and enter the workforce, they become a commodity. Because their education was guided by a degree program and a curriculum vs being self-directed, they all graduate with about the same knowledge and skills. The biggest differentiator among graduates is their GPA. Their education included exposure to a vast array of generic concepts with the broadest possible appeal to potential employers. Unfortunately, the real world does not reward generalists.

LOUIS VUITTON Purse Cake by Bronx bake shop Zeppieri and Sons

If you graduate with a culinary degree, you will likely work in a restaurant and get paid based on a scale defined by other chefs/cooks in your geography. However, if you specialize in creating special occasion cakes, you will likely not be working for the man or the woman in a restaurant but have your own business, be in a class of your own, and won’t be tied to the local wage scale. Since you have little or no competition because of your niche (special occasion cakes), you are free to name your own price for your creations.

The idea that a person, and by extension a business, should have knowledge that can be applied to solutions with broad possible appeal runs contrary to professional and business economics. In reality, the more specialized you are or a business is, the more you can get paid for a unit of output.

The median annual salary for a family physician in Colorado where I live, according to salary.com, is $212k. For the most part, a family physician is a generalist in the field of medicine. For a specialist like an oncologist, the annual salary jumps to $313k, and for a surgeon, it jumps to $404k per year.

The same can be said for freelancers and small businesses. Let’s say that you are a web designer. Website designers are a dime a dozen. As web design is not very specialized, there is a lot of competition. When there is a lot of competition, price becomes the differentiator. In fact, much of website development has been automated or can be outsourced to places like India, making it hard to be a US-based generic website developer with your higher salary requirements. My web designer has worked for me for over five years and now earns $9.00 per hour, which is a decent wage in India but well below minimum wage in Colorado.

Now, let’s say that you are a website designer that specialized in developing secure portals for patients of medical facilities. Rather than competing in what I call the fat of the bell curve of generic business websites, and specializing in a niche market, you will no longer be competing with the vast majority of the 26 million+ web developers in the world.

By targeting a small yet viable niche market, just like the special occasion cake designer. specializing doctor, or medical portal web designer examples above, you can command a higher rate per unit of output.

When you target everybody, you will be average at best. You will offend no one and try to satisfy everyone. The result is you will compromise and generalize. The only way to make a name for yourself when you compete in the fat of the bell curve is to outspend everyone else on ads. Given an already low rate of compensation, margins get squeezed until there is nothing left.

Instead, the advice I give to all my clients is to target the smallest viable market because everyone has a different worldview. In the restaurant industry, some people want fast food because time is important, some people want to eat healthy food, while others only care about price. You can’t water down your offering to appeal to every worldview.

Small businesses, in particular, should focus on niche markets by catering to more specific consumers than their competitors who target a broad audience. Catering to unique demands that mainstream providers aren’t addressing, businesses have less competition, develop loyal customers and generate higher revenue with higher margins that are largely overlooked.

What is the smallest viable market segment you can target as your niche market?