We’re all in favor of niches. They’re very useful ways to start out in business, find your feet and build a foundation before expanding into different areas. They make the first steps easier but they don’t make the very first step easier: you still have to choose the right niche.
Perhaps the most tempting mistake to make is to leave the niche too big. Create a role-playing video game, for example, and you’ll find yourself competing against World of Warcraft, a thankless challenge. Create a role-playing game for people who like to cast their spells in teams instead of alone though, as the makers of Warhammer have done, and you’ll stand a better chance of staying in the fight and surviving long enough to take on the leader once you’ve grown stronger.
But there is a second mistake you can make when choosing a niche, and that’s leaving it too small. Make that error and you might not be squeezed entirely out of business by a threatened competitor but you will be limiting your income and making future growth harder.
So how can you tell whether you’ve chosen a niche that’s too small or just right?
What are your Customers’ Names?
One of the most obvious signs that your niche is uncomfortably tight is that you can name your customers. This happens a lot on blogs and websites. Although sites often have a small group of readers who leave more comments than others, when you see the same names turning up time after time in response to your articles – and almost no other names – that’s a pretty good sign that your site has become a clique rather than an open club.
Ideally, a website will have a broad base of users and a few leading followers who shape the post-article debate. When your readers are few but dedicated, you’ll struggle to expand and to make sales.
The same is true of businesses. Plenty of slightly nerdy entrepreneurs have paid their bills by opening comic stores; few have managed to do it though by opening comic stores dedicated solely to Spiderman.
The Bottom of the Barrel
Talking to a devoted choir can get dull but another sign that your niche is too small is far more painful: you run out of ideas. Again, on a website, that’s particularly acute — and easy to spot. If after just a few months, you’re scratching your head and wondering what topics to discuss that you haven’t written about already, then you’ve probably narrowed down the potential list of subjects too finely. And that’s dangerous.
When you find yourself having to dredge the bottom of the barrel of your ideas to keep your blog or your website ticking over, it won’t be long before even your most dedicated of minority followers start to feel that you’ve got nothing left to offer them. A website that started with so much enthusiasm and picked up a great reaction can soon fizzle out in disappearing users and irregular posts.
Again, the same can happen in business. One of the necessities for commercial success is constant innovation. If you don’t offer something new, your competitors certainly will. Choose a niche that leaves little room for reinvention though and it won’t be long before your market is saturated. You’ll make a lot of customers very happy in the beginning but once they’ve left, you’ll have no one left to replace them. It’s why specialist used record stores do well for a while (or used to until digital music killed the disc) but then struggle once the fans have loaded up on their favorite songs – and dismissed the owner as a sell-out for trying to expand his range.
A third sign that a niche is too narrow is perhaps the most overlooked but it’s also one of the most important: the advertising is difficult. It’s a problem that works in both directions. Websites with narrow niches struggle to win relevant ads even from services with a tail as long as Google’s AdSense. Without those relevant ads — or with just a small group of advertisers to call on – advertising income is always going to be small.
Similarly, with just a few relevant places to advertise, businesses with tight niches will either have to cope with low conversion rates or spread their advertising narrowly. Either way, the result will be slow, expensive growth.
The correct response to all of these signs, of course, is to expand the niche. That has to be done carefully so that you don’t lose your core audience — some of whom are likely to be disappointed at the influx of new community members anyway – and it has to be done in the right direction so that you don’t find yourself in another tight corner. A better solution is to choose the right-sized niche in the first place.