From the April 1997 issue of Startups

Find a need and fill it. That's what Ida Krenzin did when she couldn't find a retail store in Northern California that sold quality buttons to finish the tailored suits and blouses she enjoyed sewing at home. Rather than settle for inexpensive plastic buttons that easily chip and don't enhance a garment, Krenzin started her own small business selling unusual buttons. "I had a feeling other people were as annoyed as I was about spending plenty of money and time making a garment and having to finish it with a 25-cent button," says Krenzin.

Her instincts were right. Through her Button Shoppe in Carmichael, California, which she founded in 1993, Krenzin sells thousands of buttons in hundreds of different shapes, sizes and textures. Her customers design their own clothes, or want to improve the appearance of store-bought merchandise. They don't mind spending from a dollar to $20 apiece for a button, especially when the buttons are made of sterling silver, pewter or pearl, and are shaped as gold leaves, coins, fishes, and Raggedy Ann and Andy.

Krenzin is succeeding at niche marketing--exploiting a narrow segment of a large, diverse market generally served by only the biggest companies. By targeting a niche, a small firm like the Button Shoppe can offer a specialized product or service to a specific group of customers. For Krenzin and thousands of other entrepreneurs, niche marketing is the key to business growth and profitability. How can you find the right niche for your business? Consider the lessons learned by Krenzin and three other niche marketers.

Do Your Homework

A key challenge for Krenzin was finding button wholesalers from whom she could purchase buttons. "They aren't listed in the phone book, so it took some digging to uncover some resources," recalls Krenzin. She finally located a few wholesalers as she scouted through catalogs and read books on the history of buttonmaking. "Once you find one source, you find another and another. Then the button distributors start coming to you," adds Krenzin, who now buys from at least 14 different wholesale distributors.

Krenzin also had to consider the best way to reach her customers. She originally sold her buttons through a small retail shop. After being burglarized twice in one month, Krenzin closed up shop and began selling her buttons at knitting, sewing and quilting shows across the country. "These shows are an important part of our marketing," she says. "They generate from $2,000 to $4,500 in sales per show."

Play Your Strong Suit

Healthy Planet Products, which produces greeting cards and stationery for the Sierra Club and other nonprofit organizations, discovered its niche once it stopped trying to compete with larger card companies. The change occurred when president Bruce Wilson found that sales of Healthy Planet Products' traditional cards were edging up three percent a year. Sales of its wildlife and environmental cards, printed on recycled but high-quality coated paper with stunning photographs of wildlife and nature, were growing 30 percent a year.

"We were trying to be everything to everyone, but there was no way we could compete with Hallmark, American Greetings and Gibson," Wilson says. In 1990, he committed Healthy Planet Products to becoming "a marketer of cause-related greeting cards, focusing strictly on that need." By 1993, with 90 percent of its card line cause-related, Healthy Planet Products turned a profit for the first time in three years and reported sales of $3.5 million. By 1995, sales grew to $5.8 million.

The Petaluma, California-based company is flourishing because it has found the right niche. "We sell blank note cards, which most larger companies don't have much success with," explains Wilson. Healthy Planet Products' use of recycled paper and its commitment to giving a portion of all sales to the Sierra Club and other environmental organizations have helped secure its image as a cause-related marketer. Its target audience are baby boomers, who, research shows, are concerned about environmental issues and buy blank cards rather than cards with pre-printed greetings because they prefer to send personal messages.

Stand Out from the Others

Amy J. Nye, a former investment banking analyst and frequent world traveler, knows that sometimes it's not what you sell, but where you sell it that gives you a competitive edge. So when Nye selected a site for AltiTunes Partner LP, her small business that sells compact discs, audiocassettes and portable electronics, she headed for New York City's La Guardia Airport.

"The airport is a melting pot of different people, from kids to seniors, all looking for a way to pass the time," says Nye. Not wanting to pay the high rent a 1,000-square-foot airport store would command, she came up with a better idea: a 220-square-foot kiosk.

"The first step was selling CDs and tapes in the airport; it hadn't been done before. Next, I needed a way to bring my costs down; that meant a small but compact site, like a kiosk," explains Nye, who convinced airport leasing management to let her construct a kiosk in an unoccupied yet heavily trafficked area of the terminal. Her music/electronics concept is working so well that Nye now has AltiTunes kiosks in six locations, and plans to open 14 more this year. Each kiosk brings in about $1,000 in sales a day.

Be Patient

Building a niche market can take years of hard work. Just ask Dave Wiggins, who, in 1978, bought American Wilderness Experience in Boulder, Colorado, a tiny $20,000-a-year operation offering Western-style horseback vacations in the Rocky Mountain West. "I had lots of patience. I had time on my side and enthusiasm for something I really wanted to do," says the active outdoorsman, who frequently camped, hiked and river-rafted in the Rocky Mountains. By steadily adding new excursions to his travel menus, expanding his mailing list, and beefing up his promotions with top-quality travel brochures, Wiggins built American Wilderness Experience into a $2.6-million-a-year adventure-travel firm, booking nearly 5,000 vacations worldwide each year.

Being one of the industry's first adventure-travel firms had its challenges. While Wiggins faced little competition, consumers didn't understand what his firm was offering. "People thought we were selling Outward Bound survival trips," laughs Wiggins. "We had to educate consumers and travel agents that these weren't trips where you're pushed to your limits. They're fun vacations."

Wiggins is convinced his patience and persistence played major roles in his entrepreneurial success. "I tell people you have to ride out some pretty lean years," he says, "so don't look for overnight success. We always said the big payoff was down the road, and we were willing to wait."

Can You Manage?

New Tax Credit

There's news on the employment horizon: The IRS will reward you with a tax credit if you hire someone who is in a pre-specified low-income group. But you'll have to move quickly and do your hiring before October 1, 1997. Here's the scoop:

In August 1996, Congress passed the Small Business Job Protection act, enabling employers to obtain a tax credit of up to $2,100 if they hire new employees from one of seven targeted low-income groups. The tax credit, which amounts to 35 percent of up to the first $6,000 in first-year wages, only applies to employees who begin work after September 30, 1996 and prior to October 1, 1997. Participants must be employed 180 days or complete 400 hours of work.

The targeted groups for this tax credit, as identified by the IRS, include: recipients of Aid to Families with Dependent Children; veterans; ex-felons; high-risk youths; vocational rehabilitation referrals; qualified summer youths; and food-stamp recipients. The definition and specific eligibility criteria for each of these groups is contained on IRS form 8500, Work Opportunity Credit Pre-Screening Notice and Certification Request. (This form and other IRS forms can be obtained by calling 800-829-3676. IRS forms are also available on the Internet at the IRS home page at http://www.irs.ustreas.gov)

If you hire someone who appears to be a member of one of the targeted groups, you need to have the applicant complete IRS form 8850 on the day the applicant is offered the job. If the job applicant is eligible, complete the employer portion of form 8850. Both you and the employee must then sign the form and submit it to the state employment security agency, which is responsible for verifying the information contained on the form. If the employee qualifies, the state agency will notify you.

From a practical perspective, there is no guarantee that someone you hire who claims to be a member of a targeted group will check out satisfactorily. You run the risk that the new hire will fail to be certified by the state agency. If that happens, you will not receive the tax credit, so make sure the person you hire is someone you would hire even if you were not eligible for a tax credit.--Milton Zall

Just For You

Tips For Negotiation

Negotiating is an important part of every small-business owner's life. Whether you're dealing with suppliers, managing employees, or contracting with prospective clients, you're negotiating. The quality and success of your business can be directly affected by your ability (or inability) to negotiate. Use these 10 tips to help you sharpen your negotiating skills:

1. Know what you want. You can't get what you want from others if you don't know what you want for yourself. Establish a specific goal for negotiation. Consider what it will take to satisfy your interests, needs and objectives.

2. Develop a game plan. Once you know what you want, establish a negotiating strategy to achieve your objectives. Before presenting your first offer, consider where you want to start and where you want to finish. Give yourself some room in which to move.

3. Know what the other party needs. It takes two to tango-and to negotiate. To reach an agreement, all parties must feel that some, if not all, of their interests have been satisfied. Your negotiating partner also has motivations and concerns. Ask open-ended questions to gather information and understand the other side's position.

4. Be an emphatic listener. There are hundreds of courses about public speaking, but very few which teach us how to listen. Attentive listening is a powerful negotiating tool which enables us to understand the motivations of others.

5. Attack the problem, not the people. Focus on finding solutions to your shared problems. Screaming at the other party may let off steam, but it isn't conducive to effective joint problem-solving. Be courteous and tactful.

6. Treat the other side as your ally, not your enemy. Your negotiating partner may have to persuade others in her organization to agree to your deal. As your friend, this person can sell your deal. As your enemy, she can sink it.

7. Educate, don't intimidate. Be prepared to explain, document and justify to your negotiating partners why they would be well-advised to accept your proposal. Help them understand your position.

8. Be patient. Don't be angry or insulted if the first offer you receive is not what you hoped it would be. Treat this proposal as the first of several in the negotiating proposal. Slow but steady movement creates momentum, which can lead to agreement.

9. Consider the consequences of no agreement. Think about what could happen-both good and bad-if you are unable to agree. Can you afford to "walk away" from the table, or are you desperate to make a deal now?

10. Be flexible and creative. Rolling Stone Mick Jagger made the line "You can't always get what you want" famous. In negotiations, this is often true. Always have a fall-back position-some alternative that satisfies you and the other party enough to make a deal. Be imaginative. "You just might find you get what you need." -Bruce A. Blitman, Esq

For More Information

Want help developing the right niche for your small business? Check out these resources:

How to Really Create a Successful Marketing Plan, by David E. Gumpert (Inc. Business Resources, $19.95, 800-524-1013). Gumpert features actual marketing plans of Smartfoods, R.W. Frookies, The Body Shop and other companies, to show how highly successful companies define and target their niche markets.

How to Drive Your Competition Crazy, by Guy Kawasaki (Hyperion, $12.95, 800-759-0190). Former Macworld columnist Kawasaki tells how entrepreneurial companies like Ben & Jerry's secured their market niches amid highly competitive market conditions.

Know Your Market: How to Do Low-Cost Market Research, by David B. Frigstad (The Oasis Press/PSI Research, $19.95, 800-228-2275). This workbook takes a practical look at implementing a market-research program and includes a look at market segmentation.

Consider membership in the American Marketing Association, an international organization with nearly 50,000 members worldwide, which conducts national conferences and publishes Marketing News and other specialty publications. Annual dues are $100, the application fee is $30, and local chapter fees range from $15 to $65. For more information, call (800) 262-1150, or write to 250 S. Wacker Dr., #200, Chicago, IL 60606-5819.

Contact Sources

AltiTunes Partners LP, 740 Broadway, 2nd Floor, New York, NY 10003.

American Wilderness Experience, P.O. Box 1486, Boulder, CO 80306.

Healthy Planet Productions, 1700 Corporate Cir., Petaluma, CA 94954.