Juan José Cervantes
Managing Partner
Trebol Capital
/
Startup Contributor

Find Your Niche, Get Rich

By Juan José Cervantes Mena | Tue, 11/30/2021 - 11:44

Recently, I have been listening to podcasts and reading articles about business models for specific niches. A niche is a segment of a larger market that you can define through its unique needs, preferences, or identity.

The reason I think it is interesting to specialize or find a niche at this time is that, although there is a lot of money available in venture capital looking for projects, these projects must have certain characteristics to be attractive to investment firms because they are looking for unicorns, they are not looking for small or medium-sized companies. Even though some of those companies may not be exponential, they can be lucrative businesses.

Venture capital firms are looking for truly huge markets that are not served; that is, they really want to see a market size so big that there is no way the startup can meet the demand, so niche markets are not of interest.

However, what those different types of entrepreneurial opportunities have in common, whether for unicorns or niche-medium businesses, is that the use of a technological solution aligned to the market’s needs is an advantage versus large businesses operating with complexities, such as the number of employees or the cost of infrastructure.

Another interesting factor with niche businesses is recurring revenue. It’s no wonder this model is attractive to investors, especially when you can identify the value of predictable recurring revenue. Investors now ask for your ARR, which stands for Annual Recurring Revenue and consists of the subscription revenue from customers for an ongoing service normalized to an annual amount.

The reason why there is interest in ARR is that more than cash or revenue, ARR is the true indicator of the company’s health and helps management run the company, plan and invest accordingly. It also gives investors another parameter for the valuation when they are deciding to invest in a company.

Finally, finding a niche should not be as complicated as creating the next Facebook (or Meta, by the time you read this article). The advantage is that the money needed is not as important as the value-added offer for your customers. If you play in a space where there is too much competition, then the winner is the one who has more dollars to capture the broader market.

Niche market businesses have been around for a long time and one of the best examples is Lefty’s, which sells products specifically for left-handed people. Only 10 percent of the population fit this demographic, yet it still represents a large body of people.

Another example is Untuckit, which creates shirts for men who like to wear them untucked and offers 50-plus fits to suit guys of all sizes. It is the perfect example of a company mastering a niche and slowly expanding out, as it now offers other male products, such as polo shirts and jackets, and has even started to cater to women too.

As those two examples demonstrate, niche businesses should focus on being someone for somebody. By targeting the right niche, the business can become the go-to authority figure.

If you are interested in this business model, find an under-served niche that needs what you want to sell or offer and become the leader in that space. No matter what industry you choose, there is always a more specific, refined niche market you can enter and master. Once you’ve chosen your niche, go deeper to understand your customers’ needs.

Your prospects and clients should always feel like they’re the sole focus of your attention. Specializing in a particular niche can address this and help ensure your message hits its targets.

But be careful. You should choose a niche you won’t lose interest in and in which you will be able to maintain your focus and avoid being tempted by the song of the sirens. Remember the words of Stephen R. Covey, author of The 7 Habits of Highly Effective People: "In becoming all things to all people, one eventually becomes nothing to everybody - particularly to oneself."

Photo by:   Juan José Cervantes