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The Concept of Niche in Business

Example explaining the concept of niche
Example explaining the concept of niche.
Source: Zhuanlan (Chinese site).

A niche is a smaller and more specific segment of a larger market.

To understand this better, let’s consider a concrete example: imagine a real estate agency.

An agency that targets a broad audience, offering a wide range of properties of any type (from studio apartments to villas with pools), fits into the general market.

That’s what most real estate agents do.

Now, let’s take the case of an agency that has decided to specialize exclusively in selling single villas with pools.

This agency has chosen to operate in a narrower niche compared to the general market.

Now you might be wondering: why should a real estate company narrow its market instead of trying to reach as many customers as possible?

And more generally, why should a business choose to specialize instead of trying to serve everyone?

The answer that nobody tells you, unfortunately, is that there’s no room for generalists in business anymore.

Those who don’t specialize in a niche and don’t find a differentiating idea that sets them apart from their competitors will be wiped out by large generalist chains.

It would be like opening a generalist e-commerce hoping to compete with Amazon.

It would be like creating a new online search engine hoping to compete with Google (just ask Cuil, which is still licking its wounds).

It would be like opening a new supermarket trying to compete with Walmart or Carrefour.

These companies make billions of dollars, what hope do we have of even grabbing a tiny slice of the pie?

Now, I’ve given some extreme examples, but the concept is clear.

The generalist market has already been taken over by companies with the resources, means, and personnel to fend off any competitor and squash any attempt to become one.

The only hope is that they make mistakes, but for now, it seems tough.

So, that’s why the concept of niche and specialization has emerged.

To give hope to anyone to enter the market.

People love more personalized and specific products and services and are willing to pay more for them.

But we need to know how to move.

In this blog post, I’ll provide my supported vision, as I like to do, with evidence and demonstrations that confirm the truth of my statements.

How People View Generalists Today

Years ago on Facebook Italy, this photo started circulating (I’ll soon translate what’s written):

Small shop owner begs for customers' attention

The author was Paolo Romeo from Non Solo Vino, the owner of a grocery and wine store that we Italians call a “bottega,” and if you understand Italy’s relationship with wine and food, you can imagine how many shops like Paolo’s there might be here: an infinite number.

Paolo was facing a bit of the problem that all generalists with small family-run shops face, not being part of the large-scale retail: a tragic decrease in customers, in favor of GDO supermarkets.

Paolo, in total good faith (I’m sure of this), had a photo taken that quickly went viral but in just as little time turned out to be a big own goal.

Let me translate the message of the photo for you:

“When you shop in a small store, you’re not helping a manager buy their third seaside house. You’re helping a little girl attend dance classes, a boy practice basketball, a mom and dad put food on the table. Small business owners thank you.”

Ethically, this message may evoke sympathy, but from a strictly entrepreneurial point of view, it’s one of the worst things an entrepreneur can do.

This way, you’re begging for your customers’ money, pleading with them to come to you instead of the supermarket.

There’s a comment on that photo that is exactly the lesson you should take away from this whole story:

A Facebook comment

The comment says:

“Can’t you change your job or reinvent yourself? Ok, I’ll help your daughter do dance, but at the expense of my children. So you know what I say? We have only 3 options. 1) I buy ham from you at 44 euros per kg, and I let my daughter watch TV because I can’t afford to pay for her dance. 2) I buy the same ham at the mall for 19 euros per kg and I can send my daughter to dance. 3) I buy ham from you at 44 euros per kg, but you also commit to sending my daughter to dance. Let me know.”

This comment is definitely provocative but totally sensible and exactly what people think of generalists who are not part of large-scale retail.

As you can see, it’s not my idea, and I’m not telling you all this for some unknown reasons: I’ve provided the link to prove the truth of what I’m saying, so you can trust me… People don’t have a good opinion of family-run general stores.

Why should I pay 100 for a product in a store when I can find the exact same product for 30 in supermarkets?

And this is nothing but the number one problem people have when starting an e-commerce business thinking they’ll get rich overnight.

The Chinese products you sell for 100 on your e-commerce are found on Amazon for 30.

Does Creating a New Business Category Really Make Sense?

“Alright Alessandro, I get it now. I shouldn’t be a generalist; I should specialize in a niche. So, what should I do? Which niche should I choose?”

Now, if this were an Al Ries course, he’d hit you with his usual teaching:

“All niches are saturated now. Every niche has its leader (number one) and co-leader (number two). There’s no room left for anyone else in potential customers’ minds. To create a new business, you must create a new category where you can be the first. If you haven’t entered the potential customer’s mind first, don’t lose hope. Find a new category where you can be first. It’s not as hard as you might think. When you launch a new product, the first question isn’t “How is this product better than the competition?” but “First what?” In other words, what category is this new product first in? Everyone is interested in what’s new. Few people are interested in what’s better. When you’re the first in a new category, you promote the category. Essentially, you have no competition.”

[Jack Trout & Al Ries, “The 22 Immutable Laws of Marketing”]

The book The 22 Immutable Laws of Marketing by Al Ries and Jack Trout
The book The 22 Immutable Laws of Marketing by Al Ries and Jack Trout.
Source: Hilal Tasdan on LinkedIn.

What you just read – though written in somewhat incomprehensible language – unfortunately, is one of the most misguided yet widespread teachings in the business world.

Translated into plain language, it means:

“If you can’t be the first in a category, create one and become the leader.”

I’d like to avoid getting angry when I read these things, so let me take a deep breath.

Now, I’m calm.

So, let’s start with the most important concept: I don’t know what Al Ries was thinking when he formulated this theory, but creating a new category isn’t a walk in the park, you know?

It’s easy to say, but besides being completely wrong advice (and I’ll show you why in a moment), it’s also advice that isn’t practical.

You don’t wake up in the morning saying to yourself in the mirror, “Now I’ll create a new category and become the leader!”

It involves tackling issues like market research, concept development, protecting intellectual property, obtaining all legal certifications and government authorization to proceed, a lengthy testing phase, an equally long launching phase… in short: creating a new category recognized by people takes years and millions and millions of dollars to invest.

And even if you managed to create a new category (which is a remote possibility because of the difficulty of the process), Amazon comes along and absorbs it, leaving you with crumbs.

No successful entrepreneur would ever advise you to create a new category.

All the famous and wealthy entrepreneurs – the ones you can find in the top 50 of Forbes and who have proven to know something about marketing and not just selling scam courses – always advise against trying to invent something completely new or changing what already works.

Let me explain why.

Let’s suppose you want to start a new business, essentially from scratch.

Along with all the concerns related to setting up various marketing processes, producing products/services to sell, and all the issues related to starting a business, I’m sure your biggest concern, however, is the fierce and numerous competition in your industry.

I bet you’re constantly bombarded with advertisements for the same product or service you’re trying to sell: Facebook ads, Google Display, YouTube… they’re everywhere.

And it only increases your anxiety.

You see competitors everywhere, and so the idea creeps in that the sector you wanted to enter is saturated and there’s no room for anyone else.

I completely understand your concern; it’s a common concern among most of my readers.

But let me tell you something: I don’t know the sector in which you want to start your business, but I know for sure that there’s still room for everyone in the market, and there always will be.

Yes, this includes room for you too.

Forget Al Ries’s misguided teachings: you don’t need to invent something strange or “create a new niche/category.”

You just need to choose from the existing ones that have proven highly profitable and differentiate yourself from competitors.

What Niches Are Trending

Which niches should you focus on?

What business niches have the most potential?

Find answers to these questions and more on choosing your ideal market niche in the blog post How to Find Your Niche“.

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