Lesson:  Finding a Niche

On page 45 of the book Small Business for Dummies is the statement:

 

Most small-business owners dive into their niches because they love the product or service they provide. The annals of small business are filled with the tales of founders who cared so deeply about their product or service that they subsequently decided to make it their life’s work so they could enjoy getting up in the morning again.

 

The work we will do this week is to consider those things we love to do – those activities that we pursue in the evening or on weekends, after we have come home and are free from our “jay oh bee” (job) that we have as a way to pay the bills.  The following is a great article on the pursuit of our personal passion:  http://www.entrepreneur.com/article/0,4621,316316,00.html

 

Then, we will look for ways to create a business around our area of interest.

 

What we’re doing

In this lesson we will look at two things:

Ø                               Finding a “niche”, and;

Ø                               Developing a “unique selling proposition” (USP).

 

Then, in Lesson 3b we will look at ways to refine our ideas by looking around us and seeking help. Once we have begun to target what we want to do, we can begin to gather information about our prospective business.  This is the major subject of chapter 12 in the text. 

The Niche

In reality, there are few new ideas – someone else at some point has probably thought of the same idea we are developing, and acted upon it.  As one of my fellow entrepreneurs once said to me, “hey, you know there’s really nothing new under the sun”.  There are exceptions - Steven Jobs and Steve Wozniak had a new idea to develop a personal computer, and Bill Gates and Paul Allen had new ideas about developing software to make the new personal computers run.  Most ideas, though, are built on ideas that came before.

 

Does this mean we will have a hard time coming up with an idea that will work?  No!  There are always ways to take an idea or product and improve it, make it cheaper, or distribute it differently so as to develop a whole new market opportunity.  These things add value to the product or service, and because of this added value, attract customers.

 

Unique Selling Proposition

This is the thrust of the second idea for this lesson – developing the “unique selling proposition” that makes your idea different and attractive. Pizza had been a very popular food for many years, served in local Italian restaurants all over the United States.  Then, in a flash of insight, someone thought “what if we offer to deliver it directly to customers at home?”  Dominos was born – a business that did not serve pizza on the premises at all, instead delivering millions of pizzas, “in 30 minutes or less”.

 

What is a Niche?

In biological terms, a “niche” (pronounced “nitch” in the US and “neesh” in Europe) is defined as a small ecological space in which an animal can find ample resources to survive, with few predators or competitors.  It is a place where the animal is relatively safe to thrive and grow.  Think of it as a small cave in a reef where an octopus lives, a place with shelter from predators, yet with access to food so the octopus can grow.

 

A niche can also be a place that has not seen a kind of animal before. The island of Mauritius, for thousands of years, saw no humans, rats, or other kinds of ground-dwelling predators.  A breed of flightless bird evolved to take advantage of the safe, food-rich niche on the ground that other birds had neglected.

 

In the 1600s sailors landed on this island and brought with them the European rat, which quickly dominated the niche that had been occupied by that famous bird, the dodo. We know what happened to the dodo, in the same way that we know what happened when the automobile entered the niche that had been occupied by the horse-drawn buggy.

 

Do niches still exist?

That question is part of our research this week. Does our neighborhood need an espresso stand, a new dry cleaner, or a house cleaning service?  If we can answer yes to this question about the type of business we want to pursue, woo hoo! We have found a niche.

 

But what if there are already three espresso stands in our community? Can we be successful opening another, simply because we love to make lattes?  Perhaps we can, if we consider our unique selling proposition (USP), or how we make our espresso stand different.  Some of you will recall the early days of the espresso boom – espresso carts opened up on street corners all over the Seattle-Tacoma region. How could yet another stand appeal to customers?

 

My Neighborhood Espresso Stand

Then, in my neighborhood in an abandoned gas station, an espresso cart owner came up with a new idea – the drive through espresso cart.  Soon that cart had cars lined up, and so opened another cart beside it to handle the additional traffic.

 

This USP – drive through espresso - was so successful that eventually even the local Starbucks had to break down a brick wall in order to build a drive through lane.

 

So what did the clever espresso entrepreneur do to remain in business even though competition had begun to invade?  She developed yet another USP – office delivery of espresso! She presented coupons to businesses within a mile of her location that promised free delivery of three or more espresso drinks.  When those deliveries were made, included was a coupon for a 10% discount on the next in-person purchase of a drink, which hopefully would bring the customer through their drive through lane the next morning rather than going to Starbucks.

 

Another USP was the frequent-shopper card – you buy ten drinks and get the eleventh free. This idea was also quickly appropriated by competitors, but good relationships with customers had already been solidified, and the espresso cart in my neighborhood thrived.

 

1. Searching for a Niche – Value Chain Analysis

What if you decide the neighborhood can’t support another espresso stand but you still love the idea of being in the coffee business?  Where to start?  Let’s look at “Value Chain Analysis”.

 

The following links talk about Value Chain Analysis on a pretty academic level, but they’re helpful in understanding the concept.

http://www.quickmba.com/strategy/value-chain/

http://www.tutor2u.net/business/strategy/value_chain_analysis.htm

 

As you can see, Value Chains are usually the vertical depiction of a business, from producer to consumer.  In the coffee business, we would be looking at something like this:

 

Farmer

V

Wholesaler

V

Roaster

V

Retailer

V

Customer

 

So what are some possible places where we could enter the value chain?

 

Wholesaler

Obviously, it is impractical for us to become coffee growers because of climate, volume, expertise, etc., but could we become a wholesaler, buying large quantities of raw coffee from growers?  Yes, but wholesalers usually buy in large quantities, requiring a large capital investment. Is there a niche in this segment of the value chain where we might be able to thrive and grow as a small business?

 

Consider some newer wholesalers who are finding niches in this area – organic and varietal coffee. They have found specific niches where there is either demand, or demand can be created through promotion.

 

Roaster

Roasters are like a manufacturer; they take a raw material and convert it into a marketable commodity. Could we find a niche here?  Perhaps we could prepare roasted coffee with flavors, or develop new concoctions of mixtures of coffee and fruits (it could happen!) or even vegetable (ok, yuck).  The point is we could look for a niche that is not being filled by current suppliers.  Look at this company – http://www.kalanicoffee.com/about_us.htm for examples of this.

 

Retailer

My example of the espresso cart above shows how additional niches can be found in this segment of the chain.  If we go back a few years to my childhood (well, ok, more than a few years) we are in a time when coffee was available at retail in only a few ways.  Grocery stores carried roasted and ground coffee in cans. You could not buy whole beans, there were not flavored varieties, and there were few other choices – it was Folgers, Maxwell House, and Yuban – and they all were pretty much the same.

 

Are there more choices now, or what!  You can buy beans to grind yourself, flavored varieties, instant coffee in flavors and varieties, pre-ground in a bag so flavors and oils are maintained, etc. You can also buy cups of coffee, as plain, or a variety of lattes, cappuccinos, etc.  You can also go to the refrigerated case for shots of espresso in a can, or to the freezer section for Starbucks coffee ice cream.

 

Another Value Chain

Below is another example of a Value Chain – this one for a chair.  See, again, how opportunities may exist for businesses all along the chain?  Could we be a specialty wood supplier to saw mills or lumberyards?  Could we build specific types of chairs that no one else is building? Could we find a new way to retail? (Unfinished furniture stores are an example of companies that did this.)  Maybe we offer assemble-at-home kits to consumers?  Here is where “thinking outside the box” comes in handy.  Brainstorming with your friends and family can help reveal possible new niches. 

 

Logger cuts down tree > sawmill converts logs to lumber > lumberyard provides types of lumber to customers > chair factory buys lumber > chair factory assembles chair > furniture store buys finished chair > furniture store markets and sells chair to consumer > consumer uses chair > consumer discards used chair after a period of use.

 

2. The Unique Selling Proposition

It’s easy to see how the search for a “niche” is connected to the “unique Selling Proposition” (USP), as often it is the USP that provides the feature that makes us different or unique; that lets us slip into an existing niche easier, or that helps create a whole new niche.  We select a niche from somewhere along the vertical Value Chain, then we can look for a USP moving horizontally along that segment in the Value Chain; that USP that distinguishes us from competitors.

 

The following links help explain the idea behind the “unique selling proposition”, and why it is important to consider this in the planning of our entrepreneurial venture.  The USP will also become a focus as we develop our marketing plan in future weeks.

 

http://www.toolkit.cch.com/text/P03_1012.asp

http://www.profitadvisors.com/usp.shtml

http://www.abraham.com/articles/How_To_Create_A_Unique_Selling_Proposition.html

 

In our examples of the coffee and chair value chains, the possible USPs are numerous, and some we have already mentioned, such as coffee with unique flavors or assemble-and-finish-yourself furniture. Other examples of USP driven companies abound.  I recently bought some breath mints that had an interesting USP; the mints had gurana as an ingredient, and gurana contains caffeine.  So I could have a caffeine break without coffee breath!

 

Speaking of caffeine, the most interesting USP I have come across was a bottled water that contained as much caffeine as two cups of coffee!

 

Conclusions to the Niche and USP

The lesson for us to think about is those things we enjoy and/or find interesting and/or can be passionate about, and to explore the value chains involved in the production and marketing of these goods or services.  Are there unexploited niches?  Are there opportunities to develop new niches through effective marketing?

 

Or can we skillfully utilize a Unique Selling Proposition to differentiate (distinguish) our product, service, or delivery method from our competitors?

 

Useful Links

The following make excellent reading in these areas:

 

Niche markets:

http://www.inc.com/resources/marketing/articles/20040501/nichemktg.html

 

Niche markets are always developing:

http://www.inc.com/magazine/20040801/nbrodsky.html

 

A success story:

http://www.inc.com/magazine/19991001/13616.html

 

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