How to identify your niche market?

How to identify your niche market?

We’ve all heard the experts telling us that when starting your business you need to know your niche market. But why do you need to do this?

The first thing I do when starting with a new client is to play the business game. In its essence, I take my client on a virtual journey through the processes of creating a business. It allows my client to get to know the ins and outs and while going through the tour I discover at what stage I need to focus on most. It clears a lot of misunderstandings in creating and running a business and takes away the fears, uncertainties and false expectations. 

Identifying your niche market is a very important part of that journey and one of the main deciding factors for the direction and success of the business. To understand the idea of a niche market we need to look at the two main types.

Product Niche

This is probably the most common type of niche for entrepreneurs in which the business is based on a product. The entrepreneur decides on a specific product with a specific function and sees that as the base of the business. The job now is to find customers who will get the most out of this product and will most likely buy it.

The entrepreneur might decide to sell cleaning products under the assumption that most people need to clean and takes that as the main reason to create the business. The focus is on the products or services and that someone will buy it. Most entrepreneurs I meet start with this process. In their mind it seems far easier. All they have to do is create a product, polish it off and put it out for sale. I call this the shopping mall principle.

The product niche is often used if the target market cannot easily be identified or if the entrepreneur hasn’t got a good connection to that segment. The business idea is based on selling as many products or services as possible and the aim is to make them available to anyone interested. Because he already decided on the product, finding customers will be the main focus.

The same would be for a hairdresser who is opening a shop to offer his services. The product already exists (hairdressing). The biggest risk would be to find the right spot, for the right price, to attract as many possible customers. There are many resources out there explaining ways to make this as little risky as possible. Have a look at the ‘Lean Start-Ups’ series of books out there where the processes are described in detail.

Customer Niche

Here the entrepreneur decides on a specific customer group and looks for ways to help this group using the experience and expertise available. The entrepreneur has not developed a product or service yet, but decided to help the chosen customer niche with his experience or expertise. The entrepreneur might be a member of a football club and found that the distribution of tickets for the games is far to costly and complicated. As a web-developer he decided to create a new website for the club members to ease and improve that process and to save the club a lot of money.

The customer is clearly the main factor in this business and because of the connection the entrepreneur has in this niche, he aims to support that group in whatever way he can. That forms the basis of the business. The important part is that it all starts with a customer and the products and services are based on their requirements and needs. I call this the consultant principle.

Know your product – and know your customer

Taking the previous example of the hairdresser, the entrepreneur decides to focus his expertise and experience on a specific customer market, let’s say men with hair-loss problems. Looking at this market, the hairdresser develops his products or services based on the customers and their needs. The entrepreneur does not need to look for customers, he already knows who they are. He needs to find the right product or service to help that customer segment.

Both niches can work well, but are very different in their execution. Whatever niche you choose for your own business, you will need to understand the difference and plan for it in your start up process. Many businesses might start with one niche type and later move to another. However, I believe it is much easier to decide on the type that works best for you right at the beginning and then stick with it. Whatever type you choose, your job must be to become the best in the game and there are many examples out there of people who became very successful using either niche type. If you would like to know which type would be the right one for you, let me know.

Which niche is the one for you?



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