It’s one thing to decide to start your own business; quite another to find the right niche to enter. Business books and blogs are full of advice for entrepreneurs to follow their passion and make or sell a product or service they know about and love. But expertise and enthusiasm alone are not enough if your idea does not fill a gap in the market or you get out-competed by failing to pay attention to rivals with a more finely-honed product or service.
The history of business is littered with products in search of markets that simply don’t exist. Take Juicero, the Silicon Valley company that spent nearly $120m developing a high-powered internet-connected juice machine, retailing for around £300. It abruptly closed its doors last year after it was revealed that its juice packs could be almost as easily squeezed by hand, showing that it takes more than enthusiastic entrepreneurs with deep pockets and big dreams to create a niche product that people really want.
To avoid such missteps, the Federation of Small Businesses (FSB) has published a crib sheet of 20 questions to help entrepreneurs decide what path to follow. They include: Can you see some form of opportunity from your existing work or occupation? There may, for example, be a niche product your employer finds hard to source. The FSB encourages entrepreneurs to think big, asking: Can you combine products or services into a package or bundle? Consumers may be happy to pay for the additional convenience this could offer.
Reflecting the growing willingness of businesses and consumers to pay a premium for home-produced services and supplies, the FSB also encourages entrepreneurs to think locally, with the question: Can you supply something that is currently being imported?
Being local often means starting small. But size need not be a disadvantage when seeking the right business niche, as small and medium-sized enterprises, or SMEs, can often have an immediate advantage over bigger companies that may find it harder to connect with a local customer base and its needs. A consumer survey by yell.com, the online business directory, found that 40% of people favour smaller businesses because they believe they will go the extra mile to please them, for example by offering services outside normal business hours or in customers’ homes or workplaces.
A separate survey by yell.com of emerging business trends found a big increase in the number of companies aiming to save precious minutes or hours for time-pressed consumers. “There’s a market out there for serving people who are cash rich and time-poor. They will pay for someone to take the strain off them. That’s why we are seeing so many niche businesses such as pet grooming services take off,” Mark Clisby, marketing director at Yell Business, says.
Clisby also reports a growth in the number of specialist fitness companies, including business providing high intensity workouts in disused warehouses. “Exercise classes used to be quite generic, with spinning or boxercise, but now it’s becoming more diversified with people finding ever more niche markets,” he adds.
Sometimes business owners find their niche almost by accident. The makers of WD-40, the lubricant that has silenced thousands of squeaky doors, set out in the 1950s to serve a very narrow niche by creating rust-preventing solvents for the aircraft industry. They had 39 failed attempts at coming up with the right formula (that’s where the name comes from). But when they did, their customers soon taught them that the product had much wider uses, including repelling slugs and cleaning gunk off rubbish bins. Now the company invites its customers to tell them how they use WD-40 and posts the ideas on its website, allowing its niche to become wider each time. Customers like this aspect of the business so much that there is even an official WD-40 fan club.
At other times, finding the perfect niche is the result of necessity. Mash Direct, a maker of mash potato and other farm-fresh products, was started in 2004 by Martin and Tracy Hamilton as a way to keep their family farm in Comber, Northern Ireland afloat at a time when the UK vegetable market was in decline and prices were falling. One night, after discussing survival ideas with a close friend over a glass of Irish whiskey, Mr Hamilton dreamt up a business of providing traditional Ulster Champ that was both convenient and healthy. Since then, the business has steadily expanded. In 2017 it won the Daily Telegraph’s SME of the year award.
Other business niches are born out of complete focus on a single idea and an absolute refusal to accept defeat or be diverted. Sir James Dyson famously tried 5,271 prototypes before coming up with a vacuum cleaner he was prepared to take to market in the early 1990s. Today his company has a turnover of more than £3.5 billion.
That’s something the two entrepreneurs featured in our first Business Talks video understand only too well. Nafisa Bakkar, is founder of fashion retailer and magazine Amaliah, which gives a voice to Muslim women, while Bola Awoniyi, is co-founder of Black Ballad, a British lifestyle platform that gives a voice to black British women. Both stress the importance of having the courage to stick to your chosen niche and not dilute your product.
In seeking to understand why some business niches succeed, it’s useful also to consider why so many fail. According to CB Insights, the New York-based venture capital database that has an unrivalled insight into start-ups, 70% of upstart technology companies fail. For consumer hardware companies, the stats are particularly brutal with a failure rate of 97%. Its research shows that the No.1 factor in failures is when entrepreneurs create companies that offer products and services that tackle interesting-to-solve problems but don’t serve a clear need. That’s something the Juicero founders discovered too late.
At Starling Bank, we know that finding and sustaining the right business niche can be hard. That’s why we built a mobile-only business bank account specifically to meet the needs of entrepreneurs and small business owners trying to take their companies to the next level.
It’s possible to open a Starling business account in minutes and, if your company has fewer than 10 employees and less than £1.7m turnover per year we won’t charge you any monthly account fees or any fees for electronic payments. Our real time notifications that alert you when a payment enters or leaves your account will help you manage cash flow. We’ve built these, and other, features so you can concentrate on the things that really matter for your business once you’ve found your niche.