How to Exploit a Small Niche For Big Profits

Niche businesses

A recent headline on the investment site Seeking Alpha read, “The Honeymoon is Over for Wix.”

Wix is one of several web businesses that make it easy for anyone – and the word anyone is important here – to create a good-looking and functional website. It competes with other online services like Weebly and Squarespace.

The headline was alluding to the fact that Wix needs to show that it can make some money. Since its service caters to anyone, the market is big, so you might be inclined to think that there’s room for a few big players. However, that big “anyone” market comes with some serious drawbacks:

  • Big markets are attractive to big (and numerous) competitors.
  • Competitors do what they always do: compete.
  • Competition drives down prices (these website building services feature free levels).

At the end of the day, trying to operate in such a big market ends up being a bloody battle of attrition with the eventual winner being awarded a market that has low margins. Further, there are always young upstarts ready to enter the market and battle for a share, so you’re always on defense.

The riches are in the niches

While these behemoths are mauling each other, there are other niche website building services that have escaped the bloodshed and been able to build profitable businesses, often by bootstrapped finances. Let me outline a few areas where I’ve witnessed some successes.

  • Movie websites. I remember hearing the founder of one website building company describe how he changed the focus of his venture from general websites to websites that promote upcoming movies. That’s his entire business today. Being specialized allowed him to systemize what he does and this lowers costs. Further, once he established his value in this market, it was easy for him to acquire new clients.
  • Auto sales websites. There are a few major players developing websites for auto sales. Here’s a market that is very big, yet homogenous enough to make marketing and servicing relatively easy. While companies like Wix and Weebly have to assemble a palette of website-building tools to solve everyone’s problems, companies that deal only with businesses that just sell cars only have to solve the typical auto dealership problems.
  • Real estate broker websites. There are some very successful website building companies that only work in the real estate industry. The advantages are similar to the automobile sellers described above. It’s far easier – and profitable – to be a godsend to one kind of company than have to be all things to all people.

As I outline these points, I’m reminded of an old friend who had a general IT consulting firm. She eventually grew so weary of competing against the same big firms for business that she decided to specialize. She focused her business on law firms. She understood their needs and was able to achieve significant success more quickly. I should also add that by narrowing down her market, she eliminated a lot of headaches.

There’s a lot of value in that alone!

Finding your niche

As you’re planning your small business, or its expansion, think about focus. Think about finding a profitable niche where you can apply your expertise and be able to market your product or service more efficiently.

Searching Google Trends and using Google’s keyword planning tool (AdWords account required) are good places to start when you’re trying to get a feel for how big a market is and how much competition you can expect to find if you enter it.

For example, using Google Trends you might be encouraged to find that there is a huge search volume for keywords around your new business idea. In fact, the Google graph may show you that more and more people are searching for your keywords. At that point it’s critical to switch over to the AdWords keyword tool and see how much competition there is for your keywords.

If the competition is high for the general keywords that relate to your product or service, then it’s time to get more specific. It’s time to start carving out a niche. Think of concepts that define narrower slices of this pie and translate those into long-tail keywords. Look those up with Google Trends and the AdWords keyword tool and study the results.

Now you might be inclined to be discouraged because suddenly you’re dealing with a smaller potential market. However, this is generally more than offset by the fact that when you specialize, you can charge higher prices and you’ll enjoy fatter margins. In fact, if you decided you wanted to pursue an AdWords campaign, you could pay more per click on fewer clicks and still end up more profitable.

It’s far wiser to spend more time researching the markets to find a promising niche than it is to dive into a huge market where you’ll be squaring off against more experienced and better financed competitors.