Be a big fish in a small pond.
One of the most important lessons I have learned in business is to focus on both the creation and capture of value in a given marketplace. It sounds simple, but in order to have a successful, profitable enterprise, you must be able to consistently create value (i.e., your product or service must make something easier or enhance an experience), and you must also be able to capture the value you have created in the form of profits. If you have only one of these two essentials, your business will not make it, no matter how popular your product or service is in the market.
With the above in mind, I have found that winning “big” in markets is most challenging where the competition is either (i) highly motivated/intelligent or (ii) well capitalized. A good example of this is the hedge fund industry, where you will be competing against the smartest people around with lots of investment capital. So, for 99.9% of the population, that is probably a space to avoid.
Remember, it’s a lot easier to make money when you are competing with people who are not nearly as capable or smart as you. This is such a simple fact, but I see it ignored or forgotten all the time. Many of my colleagues from Stanford and Yale are extremely intelligent. In fact, I believe the overwhelming majority are smarter and more talented than me. But many of them are working harder than I am today and making significantly less money because they have chosen an “arena” or industry to compete in where the competition is intense, and so it is hard to capture significant margin (profits) as a result.
I would much rather compete in an “arena” or industry where the competition is less motivated or intelligent so I don’t have to work as hard–a market in which I can win primarily by outsmarting the competition, thus capturing more margin. The issue is that many of these types of industries are not glamorous like hedge funds, investment banks, or management consulting firms. Think about it. If you were to play poker with someone, wouldn’t it be much easier to win if your opponent had a much lower IQ than you?
How to Spot a Niche Market Worth Entering
- There is a problem or issue you can solve at a lower cost than the current competition
- The competition is “old school” and not up-to-date on current processes, marketing practices, and outsourcing (for more on outsourcing, see my blog post on the value of virtual assistants)
- There is minimal competition or the landscape is highly fragmented
- You’re smarter than the competition
- You can establish credibility in the marketplace in a short period of time (within two years)
- People who want this product or service will primarily begin their search for a provider or seller online (this is critical because it means you don’t need a physical office space and also means that as long as you rank well on Google, you can compete effectively)
- There is an obvious pain point that results in a high willingness to pay for a very specific target market of users—often this pain point is a one-time occurrence in a person’s life
Four Examples of Successful Products in Niche Markets
The Product: Bump to Baby Nutrition Bars
Target Market: Pregnant women
The Idea: Pregnant women and new mothers are busy and may find it difficult to find time to eat nutritious meals. Pregnancy nutrition bars provide a convenient, nutritional, lower-calorie snack option.
Why it Works: While the competition is substantial in the pregnancy/maternity space, the industry is highly fragmented and the willingness of consumers to try products is high.
The Product: Perfect Score Watch for LSAT Exam
Target Market: Law school students preparing for the LSAT
The Idea: Exam stress can be reduced through preparation and good time management. LSAT watches give law students a better way to track time while both practicing for the LSAT and taking the exam itself.
Why it Works: The law school exam prep niche is relatively small, meaning minimal competition, and the exam itself creates a pain point that drives interest in useful test prep and time management aids. Additionally, this product will be sought primarily online, which reduces costs. The Perfect Score Watch also establishes instant credibility by explicitly indicating its compliance with all LSAC regulations and by stating that it was designed by Stanford/Yale Law graduates.
The Product: Rowing Machine Silicone Seat Cover
Target Market: Rowing machine owners
The Idea: People who own rowing machines and want to use them to row longer distances may find the seat uncomfortable for prolonged periods of use—and depending on the original design, may find cleaning the seat difficult.
Why it Works: By targeting a smaller segment of the athletics and exercise industry, competition is reduced. This kind of product is also ideal for online sale. Additionally, the product targets a pain point, in this case the discomfort that acts as a barrier to a longer workout, which serves to increase consumers’ willingness to pay for the product.
