46% of startups fail because of incompetence. One of the key factors behind such a high failure rate is a lack of planning, reports Statistic Brain Research Institute. Many companies tend to focus on markets which are already oversaturated instead of looking for underserved or neglected markets, observes Cody McLain, Founder and Chief Visionary Officer (CVO) at WireFuseMedia, a digital creative agency. If a company does not try to satisfy unmet demand in niche markets, it is more likely to fail. To overcome this scenario, McLain suggests researching those markets to assess business opportunities: “For example, in Web hosting, you can use Google Analytics and AdWords to find searches that are not returning results to find markets or groups whose needs are not being met. Another way to find your niche is to search consumer ratings indexes and sites to find areas with poor customer service.”
Every business launch should be preceded by thorough marketing research, adds Kristin Hovde, Website Content Manager at Smash Hit Displays, a provider of trade show displays. It will help you better understand your target audience: what problems they face, what solutions could solve their problems, what kind of companies, products or services they value in general, and so on. If you do not have time to conduct the research yourself or cannot receive all the information you need from government agencies, you should outsource the job. Without thorough research, you will not be able to develop a solution which will address the critical needs of your target audience. The defects of your product could also inspire other market players to design better solutions than yours.
The Commonwealth Bank of Australia (CommBank) advises entrepreneurs to estimate the risk of undertaking a business venture: “Ensure you have enough information to assess risk of market entry. Risk is anything external that can affect your business, such as new entrants, new technology, natural disasters, weather patterns and legislative issues as well as changes in consumer demand and the broader economy.” CommBank also warns of the risk of underestimating the costs of a business launch. It observes that entrepreneurs tend to overestimate the financial prospects of their ventures and underestimate overheads at the same time. It proposes a more practical approach: to project the worst-case scenario cost of a business launch as this is the most interesting figure in a business plan for potential lenders and investors.
Freelancers, solopreneurs or small businesses often do not have enough resources to challenge the market position of well-established businesses. They have 2 manoeuvre options: they can either try to squeeze into a small segment of that market or create their own business niche, claims Zoran Bosancic, an entrepreneur and an online business and marketing coach. In the case of the online dating industry, an underserved niche could be online dating for seniors or, if you look deeper, online dating for seniors from city X. “The further you go and the more specific you get, the higher the chances you’ll own that niche,” Bosancic explains. He believes that entrepreneurs who will narrow down their business focus are more likely to stand out and “capture new demand”.
Bosancic also briefly presents some features of a good business niche. He stresses that it should be of the optimal size, i.e. “neither too broad nor too narrow”. It is important to assess the market size, existing demand, potential competition and the lifespan of a niche. “In my experience, the best niches are usually connected to emotion, some serious issues (such as health), or are urgent. When people are emotionally connected, are passionate, or get great pleasure from the products or services, the likelihood of turning them into loyal customers is far greater. The same goes for urgency. When you offer a quick solution, you are more likely to sell your products or services,” says Bosancic.
According to Digital Altitude, a provider of online business training materials, entrepreneurs can gain a competitive advantage if they specialize in a distinct niche: “A business niche is your speciality, what makes you different from the other companies. This can either be a particular service or product you sell or the way you brand yourself. Whatever it is that makes your company unique is your niche. Without that distinct specialty, your audience will too often pass over your business in favor of another.”
The key question to consider is: “What can your business offer that cannot be found anywhere else?” To find a distinct concept of your business, you could ask your target customers directly what frustrates them in the current market, and then try to turn any of their frustrations into a business opportunity. If you find it too difficult to find or create your own niche, you should think about collaborating with other professionals. For example, if you have noticed that video marketing on social media is poorly utilized in your industry, you can team up with some video professionals to create high-quality, engaging videos that will help you better reach your target audience on social media, suggests Digital Altitude.