In the 1980s it was the fashion for businesses to be diverse and to offer a variety of service. This strategy was found to be wanting in the 1990s when many businesses decided to stick to the core businesses they know best and to dispose of non-core businesses. Hence one of the basis fundamental rules of starting a small business is “find a niche and stick to it.” What this means is that businesses should specialise in a sector of the market they are in rather than generalise. A good example of this is a retailer who sells men’s suits rather than all the range of clothes for men.
Yet entrepreneurs do not always take that advice seriously enough. They often think selling to the widest possible market is a likelier path to success rather than to focus on a particular segment of the market as illustrated by the above example. The aim of this article is to explain how a small-business owner defines their niche, target the right customers and, have the courage to decline business from the “wrong” people.
Why be afraid of specialising?
A common question that needs to be answered is why do so many small-business owners seem to have so much trouble finding a niche. I believe the main reason is that they are afraid. They believe that if they concentrate on one specific area and stay commit to it that they will have to turn away potential customers. This is something that worries many business owners especially when they’re getting started.
In addition to this many people believe if they offering various products/services that they see this as a benefit. For example a general retailer in the clothes industry may offer all types of products for men, women and children. However by doing this they may find it difficult to focus on the target market. Following on from the same example, the retailer may find it difficult to attract customers to buy baby clothes. The customer would instead prefer to go to a shop specialising in baby clothes since it will offer more variety in the clothes it sells. Hence I believe when a business owner tries to be all things to all people they’re really not being very helpful to anybody.
Another point that needs to be raised is whether every business needs its niche. The vast majority of successful businesses stick with a very narrow niche. For example Microsoft has been successful by mainly sticking to its Windows operating packages. In Cyprus, Charalambides has been very successful by concentrating on milk. The principle of specialising applies to large organisations as well as small. They can lose their focus just like the sole proprietor who is so excited that the phone is ringing that he’ll do anything just to make a sale. On a grand scale one only has to look at the success of EasyJet that is a no frill airliner and compare its recent performance to British Airways that provided a more full service. Even companies such as British Airways are now realising that their needs to be more focus on its core operations.
How entrepreneurs avoid falling into traps:
In addition to the above one needs to identify how an entrepreneur avoids falling into that trap of providing a general service. The more astute entrepreneurs will, from the very beginning, define what they are about. They will get better quality customers with a more narrow focus and they will get their ideal clients without having to compete on price because the clients will see that the company understands their concerns.
It will take much less of a sales job to convince their customers they know how to serve them. If for example a management consultant narrows their focus to working strictly with sole proprietors then they will immediately define themselves and will dent the competition since very few management consultants focus on sole proprietors. The potential clients will be really excited to find them because they will be specialised enough to know everything there is to know about their business and their problems.
An interesting question that needs to be considered is whether start-ups that are desperate to break even are going to be hard pressed to turn away potential clients. That is what most of business owners are afraid of but just the opposite is true. For instance, when I speak to pathologists about developing a niche they will usually present their business card that gives no indication of their specialisation. If a particular problem occurs it would be difficult to recommend that doctor since one is unaware of what he/she specialises in.
On the other hand, what if you were having a breathing problem and a friend told you that they could recommend a doctor in helping patients with breathing. Assuming you are happy with the doctor would you not think of the doctor the next time or if one of your friends was having a breathing problem. Of course you would. That is the way of establishing a niche and using it to find the right clients.
How does an entrepreneur find the right niche?
If they have a mission statement (i.e. what the purpose of the organisation is) then this can be used to provide focus of the business. I believe business owners should write their mission statement based on what problem they most care about solving [the overall purpose of the business], who benefits from this solution [who their target market is], and how they will solve the problem in a way that upholds their values, standards, and ethics [what you do for your customers].
Business owners need to consider the relationship between a niche and the marketing effort. A point that needs to be considered is how defining a niche will help with marketing, sales, and public relations efforts. It should be mentioned that everything in business is easier when you have a well-defined niche. For instance your current customers will be more likely to refer you to people who have the same problem they had. Your marketing and public relation campaign will have a natural, sharp focus. Your sales staff can deal in the specific, rather than the obscure, and they will waste less time on general prospects opting instead to target much more likely clients.
Businesses can be successful without having niches:
A number of people will argue that there are businesses that seem to be successful and yet don’t have just one niche area. A case in point here is British Homes Store (department store) that provides a wide range of products. My answer to those people is that companies can be incredibly lucky to start out with because of having an appropriate position, good contacts or because they become fashionable. However in the majority of cases I believe being a generalist is not a plan that will sustain long-term business growth because they never create an identity that can sustain them. Not having a well-defined target market is like having a ship without a captain. Though many business people seem to realise all this, few act on it. This is because they think they already have an identity. In their minds they know perfectly well what they’re doing and they don’t realise their customers aren’t picking up on it. In the past the case of British Homes Store was a good example because the concept recently is not working due to the fact that customers prefer specialised retailers. This has occurred despite the fact that it is recognised that BHS offers value for money.
The question that may be asked by generalists is how they should remedy the situation. I personally would recommend that they obtain data from their current customers through a questionnaire. The firm should ask them anonymously to answer what they believe are the firm’s strengths and weaknesses. It is important to question them on the reasons why they chose the firm over others and what they tell people when they refer the firm. A well-designed questionnaire can pinpoint the areas where the business owner is not in harmony with his customers.
I believe that business owners should talk to their customers on a regular basis and should not be isolated from them. They need to identify their needs, get to know them and do some careful listening. Though I accept it is impossible to meet all the needs of the customer, the owner should at least know what they are looking for. A golden rule is to focus on your ideal customers and their needs. What every customer wants and needs should not sidetrack the business. This is because it can’t be all things to all people. In my opinion the best efforts need to be carried out on the firm’s largest, most loyal and long-time customers.
The final point to be considered is how the typical overworked and undercapitalised business owner find time to do all of this. The golden rule is they have to make time. Planning seems to take time away from running your business but if you spend at least a few hours a month then the businessperson will save lots of hours and thousands of pounds every quarter because they will be focusing their time and their money on ideal customers.
In my opinion people put off planning because they are responding to problems and they don’t think they have time to think of a strategy. But they need to guide their business where they want it to go instead of letting it get out of control and then trying to catch up to it.
With Cyprus getting ever closer to EU membership, we are nearing the point when we are entering a new business environment when our European operators are lean and focused (specialised) operations. I believe that those Cypriot companies that will survive will be highly focused companies with a niche. To give an example I believe there are good prospects for professional run firms that export halloumi (a specialist cheese) rather than a firm that produces all types of shoes. Hence it is important for Cypriot businesses to concentrate on what they are good at rather than to be a jack-of-all-trades since the later is a strategy that may not pay in the long run.
About the author
Andy George is a qualified chartered accountant who was born in Birmingham, England and who has had many years’ experience in public practice, industry, and commerce and as a lecturer. Since 1991 he has been based in the island of Cyprus. Andy was a financial correspondent for eight years at the Cyprus Financial Mirror where he wrote articles on business and accounting related issues to a non-technical audience. He is the author of eBooks: How to write and Publish Your Own With a Shoestring Budget http://www.budgetebook.com