Why did you (or are you) starting your own business? If you are like the two thirds of Americans that dream of self-employment, chances are you desire more control over your life and greater financial potential. However, surveys consistently find that the barriers holding most people back are financial as well. Financial security, capital requirements, and fears of failure all rank high on would be entrepreneurs’ lists of concerns.
These are all realistic fears, and all reflect very real possible outcomes of the Blade Years. The high rate of failure amongst small businesses in America speaks to the need for finding and defining your niche as a business. A protracted metaphor comparing businesses to Darwin’s Galapagos finches or some other form of ecological differentiation is unnecessary here – others have written that before countless times. However, it is true that businesses must find a suitably unique way of sustaining themselves or perish. Jim Collins further expands upon this concept in his best seller Good to Great: Why Some Companies Make the Leap and Others Don’t. He demonstrates the importance of defining a niche using the example of the steadfast hedgehog, consistently thwarting the attacks of the cunning fox by doing the one simple thing he does best.
Your niche can be found at the intersection of three different factors:
- What you LIKE to do
- What you are GOOD at doing
- What you can get PAID to do
These factors are things that everyone (ought to) naturally consider when choosing a job. When starting a business, they become much more important. First, you have to look for things you enjoy. While this sounds like the self-evident fatherly advice you might have received growing up, the insight means the difference between pursuing a labor of love or a labor of agony. Next, you must consider what you are good at doing. Of course – no one is going to hire you for something you’re not good at, or at least they won’t keep you around for long! Finally, you have to consider what you can get paid to do. There are some things that, while you may be very good at them, just do not create enough value or demand on the market to actually turn into a business. This is not to say that these are worthless pursuits, just that they will not provide you a livelihood.
Two out of Three isn’t Good Enough
While the singer Meatloaf may have taught us that “…two out of three ain’t bad…”, when it comes to defining your niche, it will fall short of the mark for you success. Many people find something that combines two of the three categories, and this is where they run into problems. Here is how we define the intersections found at two out of three:
- LIKE and GOOD: Hobbies
- GOOD and PAID: Job
- LIKE and PAID: Almost there – get training!
Perhaps the most common – so common it has become a cultural trope – is the starving artist. They have something they enjoy thoroughly and have some level of skill in, be that painting, music, acting, or something else entirely. However, the market for these careers is already saturated, so they struggle to find someone willing to pay for what they are doing. Ventures like these are considered HOBBIES; and while admirable, is probably not the best choice for a service based business.
Consider also individuals that are good at something that is in demand. They have no problem finding work and completing that work to an exceptional standard when they perform it, but they just don’t enjoy it. This is quite simply a drag. It’s the JOB you have that you don’t want, something you seek to escape.
And of course, there are things you enjoy and could theoretically get paid to do, but just aren’t very talented at, yet. This is not to say that you could never pursue opportunities in that field, just that you will need further TRAINING and experience before you are able to.
The magic happens, either as an employee or a business owner, where all three meet. This is your niche, and this is the question all business planning and research ought to be focused on answering at the end of the day.
With the question in hand then it becomes necessary to look for tools to help answer it with, while providing a sound growth strategy. While a comprehensive list of research resources and academic models is not feasible to give here, BIG does consistently make use of one specific tool, and we tell all of our clients to as well; the Ansoff Matrix.
Where is the Risk in Your Growth Strategy?
The Matrix graphs “markets” on the Y-axis, rising from a market you already participate in to a new market, and your “value proposition” on the X-axis, sliding from an established product or service offering to a new one, resulting in four possible growth strategies:
- Market Penetration: Current Product (Service) / Current Market
- Market Development: Current Product (Service) / New Market
- Product Development: New Product (Service) / Current Market
- Diversification: New Product (Service) / New Market
Where you try to enter an existing market with an existing product, you have the lowest risk type of expansion; Market Penetration. The variables are already known, you’re simply doubling down on something that has already been working.
Traversing the Y-axis, we approach Market Development, where you take an existing product into a new market. This is moderately risky, relatively speaking. You know all about your own product, but the institutional knowledge and practices are not there for the market and have to be learned.
Opposite this we have another moderate risk activity; Product Development. Here a new product is taken into an existing market, so the roles are reversed. You know your market and their needs, but the performance of your product or service is not yet known.
Finally, we have Diversification, where you take a new product into a new market, the highest risk activity of the four. With so many unknowns, it is difficult to make any predictions at all about what will happen, and establishing causation for anything that happens, be it good or bad, is complicated by the lack of information as well.
As a consultant the Ansoff Matrix is useful for answering two of the three niche questions. Your skills and insights are of course your product. If you have sold your product or service before as either an employee or independently you have proof of marketability – you know there is someone who is willing to pay for you. And by being honest with yourself you know your skill level with this task. From there, you can determine an appropriate growth strategy. If you want to sell an existing skill of yours to a different type of company, you’re developing a market. New skill with existing or past clients? Product development.
By considering consulting decisions in the context of the Ansoff Matrix, we have a coherent framework for evaluating and comparing opportunities and the risks that come with them.
It is naturally safest to subcontract with people you’ve done business with before doing the same work as before. But with the need for growth – and driving the business further down the hockey stick – comes the need to explore new niches and opportunities. Rather than allowing a sense of foreboding to creep in about an unquantifiable amount of risk, an Ansoff Matrix and a good analysis will get you started towards making an informed decision on the risk any course holds.