Let’s start with the basics - what is a niche, and what does “niching down” mean?
One of the most common sayings is “You cannot be everything to everyone.” You’ve probably heard of this or some variation of it. It basically means if your business is a general business, it’s not going to do that well. But is that really true?
On the flip side, “niching down” refers finding a definable and profitable niche. A specific space in the market that you can dominate.
Let’s take a look at the pros and cons of both sides of the argument.
The benefits of being a business that serves a general problem is that you can offer clients many different services. If you are a generalist, you can cater to a wider audience and potentially open yourself up to a lot of other clients. The benefit of being a generalist is that when you're growing through word of mouth, growing through referrals, you’re getting people from all walks of life. People's social circles come from all different types of industries that are all potentially profitable.
The drawback to being a generalist is that it becomes more difficult to demand a higher price from your clients. Why? Because no one client is the exactly the same, and you start building varying types of portfolios, but not enough of the same portfolio to call yourself an expert in any one field, making it hard to demand a high price.
Another problem is time. Each client project takes more time and is more expensive to fulfill because each one is different. You're unable to strongly leverage the past work you've done.
Although you're getting all these different types of clients coming in, it's really hard to scale. It will be hard to gradually charge a higher price on the client facing side, but also be equally as difficult to gradually reduce your cost of sales on the internal business.
Here's Why Niching Down Is Important
I'm going to illustrate this with an example, let's say I run a digital marketing agency. Instead of accepting every type of client, my digital marketing agency specializes in dentist offices. Now, after I've done work for five to ten dentists offices I know (not 100%, but an idea) of what works and what doesn't work for this specific industry.
With my expertise, I’m able to gradually increase my prices, and justify these increases with my past client's results. My agency is also going to be able to reduce its internal costs because I’m able to look back and say, “Hey, this particular client's demographic is extremely similar to this person I’ve worked with in the past. Let's copy that campaign, let's paste it over, let's make some tweaks because we know this is going to work.” The expenses are reduced so it becomes more profitable and more scalable.
If you were a generalist, it's much harder to position yourself as being a true expert in a specific market. The best interface designers are true experts, therefore they can charge a much higher price point because they're so good.
But I recognize that it’s harder to drive referrals from a specific industry outside of your friends and family in the short term because you're just starting out and you want to be able to cater to everyone. It's counterintuitive because you think that you need people to come from everywhere in the market, but actually, if you're solving a very specific problem, you're going to drive referrals over time from a specific space in the market which will enable you in the long run to increase your costs. This theory also applies to pay per click campaigns.
Solve A Specific Problem
Are general or specific campaigns usually more effective?
Let's say there's a business that sells its product across Canada, you could create one ad set that targets Canada and talks about selling to Canadians or you could create multiple different sets of ads for each province which you could customize with specific details that appeal to residents of each province. Specific campaigns work a lot better.
If you are very focused on solving a specific problem and you're producing content about that problem, you can attract the right type of audience. Your content caters to a very specific type of person. This is important because what resonates with readers determine whether or not they will become a customer to your business. Your specific copy will also allow you create trust and authority with your potential customers in your industry.
Now that we’ve established that niching down is more profitable, and more scalable the question remains, why doesn't everyone just niche down?
It's difficult in the beginning stages of a business to niche down and this is the reality for most small to medium-sized businesses. Most of the initial business is going to come from referrals, from word of mouth and from leveraging their personal networks.
The second question is, when a business is ready to niche down, which niche should you choose?
Let’s take a look at Sean’s company, North Digital (Also the Ghostit podcast co-host). They build websites and do month to month digital marketing campaigns, primarily pay per click, to a wide variety of businesses. North Digital could move into specializing more in website development, more into digital marketing or choose to focus on only certain types of businesses rather than almost all types of businesses. Those are decisions that take at least a couple of months of market research and reflection to figure out.
So, while North Digital is pursuing this, encouraging referrals from personal networks will pay the bills.
There is no easy answer to it if you make the wrong decision, and you choose the wrong niche, you've wasted your time and you've potentially wasted a lot of money as well. So, it really is more of an art than a science. As a small business, you have to watch your cash flows and you have to make sure that your contracted employees are paid. You have to make sure that all the expenses are paid so you can't just throw your hands up and say, “That's it I'm niching down now,”.
My favorite examples of this is a story that comes from my business partner Rahul. He had a friend that started a coffee shop, and it was just like any other coffee shop that ever existed. They were struggling, and a coffee house is pretty niche but they didn't have a competitive edge and so one day they decided to come up with their own certification for latte art.
They put up a Groupon that said something along the lines of “Become a certified latte art barista” and they sold out immediately their first night! And that became their niche. What I learned from this example is that if something isn't working in your business and you think there's an interesting side tangent of a business that you can market to, it is definitely worth exploring.
It is a balancing act of gradually transitioning from being a generalist, (What is paying your bills and allowing your business to grow slowly), to gradually moving into a niche.
Turning away money is hard
It’s also difficult to just turn money away. When people come to your business and offer an x amount of dollars for a specific service, even if it’s not part of your core service, it’s hard to turn away.
Part of niching down is having the ability to say “No, we're not going to help you. Here's a trusted business that we think you should go to.”
Let’s revisit Ghostit. What we do is content marketing automation for small to medium-sized business. That is the core of our business, we do the monthly blog posts, the monthly newsletters, the monthly social posts, you get access to the platform and we build a content marketing strategy that tells you why we write what we write and what we're doing. That is what we offer to people and is the core part of our business but we have this whole unadvertised side of the business where we do super in-depth content marketing strategizing. This is a very different offering from the core of Ghostit’s initial service.
As the CEO of Ghostit I often have to think about do I completely cut that part of the business or do I keep servicing these clients because some of the names are big names and we are getting some really good inbound.
Money talks, so it’s easy to keep accepting these clients, but I always keep in mind Ghostit’s real goal and that's building out our four pillar platform. It’s important to be aware, and to have a course of action, a plan, to gradually turn down these extra projects that are not within your core service offering.
These projects are not building your business for the future, they are a means to make initial capital. What we have done is gradually increase the pricing on these custom services, and if that takes us out off the market, if you become unaffordable to people, that's okay because then you're just focusing on your core business.
Don't just optimize your business to make to make money for the next thirty to sixty days, optimize your business to make as much money as you can in the next one to ten years.
The Big Takeaway
The takeaway is that you have to niche down sooner or later. Keep in mind this is, generally speaking, there are the exceptions of one-stop shops that do really well.
So, I as a general guiding principle, you as a business owner should seek to niche down. There is an element of timing for some businesses it might make sense from day one to start very specific and for some businesses it might make sense to start more general, get their feet wet, build a bit momentum before niching down. While the benefits of niching down are undeniable, you also don't want to use that as a crutch to prevent actually starting a business, and actually moving forward.
If you’ve enjoyed this blog post or podcast and have any questions about the topic of niches, and business, give me a shout at firstname.lastname@example.org. You can also sign up for our newsletter for more awesome tips and great content.