Scratch a Niche

Targeting a narrow customer base with a niche business could be your key to success.

Interior decorator and small-business owner Deborah Wiener, 46, has carved out a special place in her Silver Spring, Maryland, market. She doesn't just help clients pick out colorful fabrics and comfy furniture--Wiener's work is much more specific and detailed than that. The entrepreneur's 4-year-old niche company, Designing Solutions LLC, specializes in creating family-friendly interiors for her clients' homes. This includes helping customers choose furniture that can stand the wear and tear of active children, stain-resistant fabrics, and lamps and accessories that are less prone to breakage.

Before launching Designing Solutions, Wiener did her homework to see if there was really a need for the niche enterprise she was contemplating. An interior designer by trade, she took various friends and acquaintances with children out to lunch in groups of three and four. She asked them what they thought of local interior decorators, and most said they were too "fancy," offering suggestions not practical enough for people with kids.

Wiener also began writing columns for and advertising in local publications, churches and synagogues to promote her skills. The mother of two boys, ages 14 and 9, discovered through her research and marketing that there was an unfulfilled need in her community for an interior decorator who under-stood the needs of clients with kids running amok through their homes. This niche business, which projects more than $2 million in sales this year and has four design consultants, was born in 2001 in Wiener's home.

Getting Started

Niche businesses like Wiener's--which offer a product or service focusing on one specific aspect or customer base within an industry--are growing at a rate of 20 percent to 25 percent per year, according to Ira Davidson, director of the Small Business Development Center at Pace University in New York City. Some popular niches these days include specialized pet products, beauty salons/spas, travel agencies, back-office services, technical/online support and business coaching.

"Niche startups are good in that they offer you a chance to focus all your branding and marketing in one area and expand on those core customers as you grow your company," says Davidson. "After all, when you try to be everything to everybody, you wind up being nothing to anybody--and that's the problem with ventures that are too broad."

In addition, the advantage of starting a niche business is the ease of identifying your potential customer base, since you are targeting only certain buyers. In fact, niche ventures have a 25 percent better chance of surviving over 10 years than more general types of companies, says Jennifer Sander, a small-business consultant in Granite Bay, California, and co-author of Niche and Get Rich.

Obtaining financing for niche ventures can also be easier. Compared to more general businesses, there is less competition to deal with, which makes you a more attractive candidate when seeking capital investors, says psychologist Larina Kase, president of Performance and Success Coaching LLC, a Philadelphia consulting firm that works with small businesses nationwide.

"As long as you have your research done and have checked out the competition, niche companies with detailed business plans can be very attractive to investors," agrees Tony Warren, venture partner in Adams Capital Management, a Pittsburgh firm that has invested in 30 companies nationwide. Warren is also a professor of entrepreneurship at Pennsylvania State University in University Park.

Before you approach lenders or private investors for capital, research your market to determine if your business idea will develop into a viable niche enterprise. Examine your competitors' earnings, if that information is available online or in libraries, Davidson says. If competitors are well-established, they won't see your startup as a threat. In most cases, you can pick their brains for information on how the market is performing, what they charge and if there is room in the niche for a new business like yours.

Speaking of competitors, the number of those offering similar products or services will help you figure out if your niche is too narrow--or too broad and not even a niche anymore. There is no rule of thumb since each industry is different, but you should find at least a couple of competitors who do something similar to what you are proposing in your market, says Terry Neese, a small-business expert and president of Women Impacting Public Policy, a national advocacy group based in Washington, DC.

"You don't want to be so niched that you're the only one out there, and no one quite understands what you're talking about," Neese says. "On the other hand, you don't want to be one of dozens, because then the niche is too saturated."

Go through last year's telephone book in your market and contact competitors in your niche to see if they are still in business, says Gene Fairbrother, lead business consultant in Dallas for the National Association for the Self-Employed and president of MBA Consulting Inc. Look for at least a 50 percent survival rate within a 50-mile radius. If your business has national appeal, do the same thing with telephone books in three to five other comparable markets, he adds.

"A good survival rate could indicate that your idea has lasting potential and is not too faddish, which is a danger for overly trendy niche businesses," Fairbrother says.

You should also interview potential customers. This is important because your clients are very defined and somewhat limited, and you want to make sure they have a real desire for what you're offering.

"You can't market to the world with a niche business, so you want to make sure you are meeting the needs of your particular clientele," Fairbrother says. "Without that, you are working in the dark."

Finding out your customers' needs can be done in a variety of ways. Conduct customer focus groups with five to 10 people, ultimately talking to about 100 individuals, who can tell you what kinds of products or services they want, how they want them delivered, what's missing from what is already available and how much they are willing to pay, Kase says. Next, create a survey. A trade or professional association in your field may be able to sell you a list of individuals or companies you can interview, either locally, nationally or both. Expect a 10 percent response rate--which translates into 10 completed surveys for every 100 sent out, Fairbrother says. You can also query potential customers at trade-association or group meetings devoted to your niche.

"If you are selling products just for birds, ask your local pet shop for the name of a local bird-lover's group," Fairbrother says. "Ask these people what products they need most and how yours can fit in. Go one step further and attend trade shows for bird-lovers, and talk to the masses."

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This article was originally published in the August 2005 print edition of Entrepreneur with the headline: Scratch a Niche.

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