CCS Blog

Do You Want to Create a Niche Market?

by Jim Martin

A myth persists that the best way to become an entrepreneur is to find a niche no one else has discovered. Doing so isn’t easy. Lots of things can happen to cripple a niche effort. Examine what you have to do to exploit that niche, and you might decide it would be more productive entering an existing market than to chasing a new frontier. Consider a few points.

First, how can one determine if the perceived niche actually exists. Perhaps no one pursues that market because there is no market. This is a very important consideration if the niche product requires high volume sales. Low volumes are easier to manage. For example, if one had the skills to produce a set of modifications that led to a faster, better handling version of a popular car, there would be three key questions: 1. What would the modifications cost; 2. Could it be sold at a price that recover those costs; and 3. Could an agreement be worked out with the car’s dealers? An improved croquet set would be harder to research.

Consider a different new product: chocolate covered pickles. Our car project could be compared to products others already market using other makes, but this would have no comparable products. One could pass out samples at a nearby mall, but that might not provide good information. If 1% of the people in the country liked them, that would mean 3-million potential customers, but a small samples would not be statistically valid. If one of 100 people liked them, that wouldn’t prove a 1% National consumption rate. And one would need to know whether that 1% wanted “Chocopicks” once a year or once a week.

Designing and conducting a comprehensive consumer survey might be too expensive to undertake One might have to just “bite the bullet,” and move forward. Risky!! Don’t pursue a niche unless you can confirm it in advance.

Let’s say both our new products get started. The auto market is such that our mods could be carried forward from model year to model year, and they might eventually develop a strong fan base (like Carroll Shelby’s GT modifications of the early Mustangs). But there is no model year for pickles. Our Chocopicks might take off initially and then fade just as quickly (think hula hoop or pet rock). Whether something new would be a fad or a sustaining product cannot be determined in advance. Early success might lead a producer to over-invest in facilities and equipment that might lie idle several years later. Hmmm, still risky!!

Maybe the best answer to a niche idea is to pursue the middle ground. Make it part of a broader effort within which it might fit. The Chocopick owner might open a confection shop with a section dedicated to “exotic” snacks. If the pickle idea is successful, our entrepreneur would have contacts among his suppliers who could help him distribute it painlessly to other outlets. If it failed he would still have a profitable candy store.

Creating a new market is one of the hardest ways to start a business. It can be done: look at the iPhone. But it isn’t easy. If you have a great new idea, sit down with some experts and discuss its potential and how it might be launched. That could save you grief downstream.