The overall theme of the Peter Thiel book, Zero to One is a study of what successful innovation looks like, primarily in tech start-ups. One of the main concepts in the book is that most of the really successful businesses have started by dominating a very specific and limited niche market.
Examples:
Southwest Airlines – a business case study that validates the niche market idea. Despite having the grand purpose to bring affordable air travel to the masses, their initial launch was in a few markets in the state of Texas. This allowed them to (relatively) bootstrap the business and gave them the opportunity to modify and perfect their business model on a small scale before expanding to the rest of the US.
Mark Zuckerberg started Facebook as a platform that was only available to students at Harvard. Imagine if he had attempted to launch to the world which is his market now. He dominated the Harvard online social media market and moved on to other colleges before going much broader.
iTunes was initially only available to the Apple / Mac community, becoming available to the much, much larger PC / Windows based world after version 4.0 or so.
In all of these cases (and there are many more in the book) the initial focus was purposely very narrow with the idea that you need to figure out how to dominate in a narrow niche and then find a way to expand from a position of strength.
How does this apply to the rest of us?
You may not have grand plans to create the next Facebook or Southwest Airlines. Most of us don’t, and that’s okay. Nothing works if we try to pursue other people’s dreams and there is a lot to be said for wanting to be great rather than wanting to be big. However, that doesn’t mean the idea of dominating a niche doesn’t equally apply to you on your journey toward building a great company.
If your business is fairly new, you still have the opportunity to identify a niche – a focused target market that you believe will hit your sweet spot in terms of what you know, who you know and how you would like to operate.
If you have an existing business, you may be trying to serve a broader audience – probably because you believed that doing so would give you the best chance of success. I can’t tell you how many people I’ve heard explain that they will work with anyone who has a pulse or can fog a mirror. Just so you know…excluding dead people isn’t really focusing on a niche. If you look at all the people you currently work with, and enjoy working with, there is probably a set of characteristics you can identify. Here are some possibilities to consider:
Geographic – do you serve a particular geographic area better than others?
Product Focus – is there one product or service that you’re much better at delivering (and enjoy more)?
Customer Focus – what kind of clients / customers do you enjoy and help the most? Is there a logical connection (i.e. they all have kids that play soccer…or they love music…or they like to travel, eat out at fine dining…etc.).
The hardest part about picking a niche is having to say ‘No’ to other kinds of work. As an entrepreneur you’re wired to say you can do pretty much anything. It’s counter-intuitive, but the best way to grow is to say ‘No’ to things that aren’t in your niche – that’s the only way you will be able to dominate in your niche.
You can expand later…but do it from a position of strength when you have a highly profitable niche that you are dominating and where you have be able to build a great reputation and brand.
We have a CBI client that committed to saying ‘No’ to business they thought they needed to keep when they bought the business. When they started saying ‘No’ they had over a 1,200 customers. Their average invoice was in the $30 range when they would see some of those customers once every 3 years. Now that they have found their niche they have 300 clients, but their average invoice is over $200 and they see their customers much more often and they make far more money than they did trying to serve so many customers. They are on the way to dominating their niche with exactly the customers that they enjoy working with.
What would it take for you to focus your efforts? Have you identified where you are the strongest? Where do you already have an advantage? Can you make the leap to saying ‘No’ to opportunities that are not in your niche? I’d love to hear your thoughts. Does this make sense in your world?
