4 reasons it’s nice to be niche

cat niche 2_cropped
“More organizations die of indigestion than starvation.”  -David Packard
When you take on too much, you lose out on the efficiency that comes from focus. The lesson isn’t a new one, but it bears repeating—here are 4 reasons to specialize.

1)     More compelling product

Product focus is critical for small and growing companies because, almost invariably, they’re going up against larger, better-resourced rivals. When you don’t have the resources to be everything to everyone, having a narrower product strategy helps ensure that your product is fantastic for someone.

Picking a niche allows you to zero in on your segment’s needs, and to outperform larger competitors in two important ways. You can offer the right features for a given customer set to beat out a gappy generalist product (or fill a totally unmet need). You can also offer intuitive simplicity as an alternative to a product that has all the bells and whistles, but is painfully complex or expensive.

2)     Lower customer acquisition costs

Marketing and selling a product, particularly if you’re evangelizing a new space, is an uphill battle. Geoffrey Moore’s “Crossing the Chasm” advocates that new technology products start with a focused beachhead market for exactly this reason. Focusing on a smaller target market limits the number of people you need to inform and convince. Focus permits you to spread the message less widely, and speeds the time it takes to go from an unknown to a no-brainer.

Once your product becomes an accepted standard with name recognition and relevant reference customers, selling it gets easier and less expensive. Rather than trying to enter multiple sub-markets simultaneously, aim to dominate one first. Define a group of customers that read the same publications, attend the same conferences, and most importantly, talk to each other.

3)     Operational efficiency

There’s an old and well-documented phenomenon that, in many industries, market leaders tend to be more profitable. Among other reasons, that’s because they have operational economies of scale: their fixed costs are spread over more units and their variable costs are lower. A small company can mimic the efficiency of a much larger company by defining the market narrowly enough that it is the leader.

For a manufacturing company, it’s easy to conceptualize how this would work; if you can use the same investment in machinery to serve more customers, or make the line run faster through standardization, your cost per unit will fall. The same fundamentals apply in a tech company. If your customers all use the same complement of software tools, you can re-use a few standard integrations instead of building many custom ones. If support representatives encounter the same types of needs, they can gain efficiency through pattern recognition or automation. Doing the same thing over and over typically costs less, so to the extent possible, do more of the same thing.

4)     Team coordination

On a small team, it pays to all be pulling in the same direction. One of the most powerful ways to get that coordination is to simplify the message, and communicate it over and over again. In advertising, the “Rule of 7” describes the number of times a customer needs to hear a marketing message before taking action to buy a product. Business management research has found that the same underlying psychology is behind the success of redundant communication, a tactic of deliberate repetition to move projects forward faster.

Having fewer, focused priorities across an organization allows leadership to be consistent, and repetitive, in its messaging. Focus makes it easier to make sure functional and sub-team plans dovetail with overall strategy. And, as repeated messages sink in, they help individual employees make trade-offs that impact the team’s course.

…But not too niche

A small niche won’t sustain growth forever.  Successful growth strategists reach full potential in the core business, then expand into adjacent verticals, and redefine the core as necessary. What a well-considered focus can do is help avoid the distraction of chasing shiny new opportunities when there are still more efficient avenues for growth closer to home.

For ideas on how to evaluate whether a niche is big enough, check out Is your niche too small (or too big)?

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