From the September 2008 issue of Startups

There's big money to be made in niche markets. If you look in every corner, every possible angle of the market, you can find an untapped niche and start a business to serve its distinct customers. David Mandell found his niche with The Pink Spirits Company, which sells caffeinated vodka. After observing fellow bar-goers at the Skybar in Los Angeles enjoying Red Bull and vodka cocktails, the New York City entrepreneur and former attorney got the idea to directly infuse high-end vodka with caffeine and guarana. The result: alcohol that doesn't make you tired. "We realized we had something with tremendous potential," says Mandell, 34.

Still, having the epiphany wasn't enough--Mandell had to uncover potential competitors. He studied distribution and marketing in the spirits industry and formulated a plan of attack to get his Pink brand of vodka onto bar and retail shelves.

That type of research is vital to finding success in a small niche, says Susan Friedmann, author of Riches in Niches. You must know and understand your target demographic to estimate whether the market is big enough to sustain your niche business, she says. Also, don't choose an overly popular niche--instead, look for one that's up and coming. Then find out where your target customers get their information. Says Friedmann, "You've got to make your splash in the area where your target market goes."

Mandell not only became an expert in the spirits market, but he also created a targeted pitch to get bar owners and retailers on board. He created the Energy Cocktail Menu, a recipe book featuring the caffeinated vodka and the most popular Pink cocktails, including Pink lemonade. "We don't try to be everywhere at all times," says Mandell, who projects 2008 sales of about $10 million. "We'll focus on 50 to 75 accounts in each market and build those accounts to be real Pink supporters. It's the best way for us, as a small company, to focus our energy."