By Karen E. Klein One of the fundamental tenets of starting a small business is "find a niche and stick to it." Yet that advice is not always taken seriously enough by entrepreneurs, who often think selling to the widest possible market is a likelier path to success.
How does a small-business owner define her niche, target the right clients, and have the courage to decline business from the "wrong" people? BusinessWeek Online contributor Karen E. Klein asked Leslie Godwin, a career and life-transition coach based in Calabas, Calif., for advice. Edited excerpts of their conversation follow:
Q: Why do so many small-business owners seem to have so much trouble finding a niche?
A: They're afraid. If they pick one specialty area and commit to it, they'll have to turn away potential clients and that's scary, especially when they're getting started. The other thing is that people see multitasking as an asset: If they're business consultants, for example, they might be able to help clients do everything from ordering stationery to writing a business plan to helping with a corporate merger.
But they can't market themselves that way, they can't focus in on target clients that way. I tell my clients that when they try to be all things to all people they're really not being very helpful to anybody.
Q: Does every business need its niche?
A: The vast majority of successful businesses stick with a very narrow niche. The principle applies to large corporations as well as small, by the way. They [can lose their] their focus, just like the sole proprietor who is so excited that the phone is ringing that he'll do anything just to make a sale.
Q: How does an entrepreneur avoid falling into that trap?
A: Smart entrepreneurs will, from the very beginning, define what they're about. They'll get better clients with a more narrow focus, and they'll get their ideal clients without having to compete on price because the clients will see that the company understands their concerns.
It will take much less of a sales job to convince their customers they know how to serve them. That business consultant, for instance: If she narrows her focus to working strictly with sole proprietors, she'll immediately define herself, she'll cut the competition in half since very few consultants focus on sole proprietors, and clients will be really excited to find her because she'll know everything there is to know about their business and their problems.
Q: Aren't startups who are desperate to break even going to be hard pressed to turn away potential clients?
A: That is what most of my clients are afraid of, but just the opposite is true. For instance, when I speak to psychotherapists about developing a niche, I don't need to bring along samples of what NOT to do. I just ask if anyone has a business card. Inevitably, several participants will hand me cards that say: "Specializes in treating children, adults, adolescents, groups, and individuals."
Then I ask them, "If you needed a therapist, or if you wanted to refer someone, would that list of 'specialties' help you decide that this is the therapist for you?" Of course not.
On the other hand, what if you were an ob/gyn, and a therapist told you she specialized in helping women struggling with menopause? Wouldn't you think of her the next time one of your patients was having a hard time coping with that life transition? Sure you would. That's establishing a niche and using it to find the right clients.
Q: How does an entrepreneur find the right niche?
A: If they have a mission statement, this is the time to dust it off and see what it says about the focus of the business. I ask my clients to write their mission statement based on what problem they most care about solving (the overall purpose of the business), who benefits from this solution (who their target market is), and how they will solve the problem in a way that upholds their values, standards, and ethics (what you do for your clients).
Q: How does defining a niche help with marketing, sales, and public-relations efforts?
A: Everything in business is easier when you have a well-defined niche. Your current customers will be more likely to refer you to people who have the same problem they had, for instance. Your marketing and PR campaign will have a natural, sharp focus. Your sales staff can deal in the specific, rather than the abstract, and they will waste less time on general prospects, opting instead to target much more likely clients.
Think about the psychotherapists I talked about earlier. Which one is easier to remember and give referrals for: The one who lists everybody and every problem? Or the one who specializes in working with women going through post-partum, or life transitions?
The specialist has a natural market tie-in with ob/gyns if she talks to some and lets them know that she has expertise dealing with patients who are struggling with menopause or postpartum hormonal changes. She has a built-in passion and caring for women in these stages of life -- something the doctor is likely to share. It makes a big impression on someone when you have something specific that you know well and care about deeply.
Q: What about those businesses that seem to be successful and yet don't have just one niche area?
A: Companies can be incredibly lucky to start out because of positioning, good contacts, great investors, or because they become trendy. But being a generalist is not a plan that will sustain long-term business growth, because they never create an identity that can sustain them. Not having a well-defined target market is like having a rudderless ship.
Q: Many businesspeople seem to realize all this, but few act on it. Why?
A: They think they already have an identity. In their minds they know perfectly well what they're doing, and they don't realize their customers aren't picking up on it.
Q: How should they remedy that?
A: I'd recommend that they survey their current customers. Ask what they think of when they think of your company. Ask why they chose your company over others. Ask what they tell people when they refer your company. A well-designed survey can illuminate a lot of disconnects between what the owner thinks he's conveying, and what the clients are digesting about the business.
I also tell clients to talk to their customers on a regular basis. Ask about their needs, get to know them, do some careful listening. You can't meet all your client's needs, but you should at least know what they are. One caveat: Focus on your ideal clients and their needs. Don't get sidetracked by what every client wants and needs because, again, you can't be all things to all people. Use your best efforts on your biggest, best, most loyal, longtime customers.
Q: How does the typical overworked, undercapitalized entrepreneur find time to do all this?
A: They have to make time. Planning seems to take time away from running your business, but if you spend at least two hours a month, you'll save lots of hours and thousands of dollars every quarter because you'll be focusing your time and your money on your ideal clients.
People put off planning because they're responding to problems, and they don't think they have time to strategize. But they need to guide their business where they want it to go, instead of letting it get out of control and then trying to catch up to it. Have a question about running your business? Ask our small-business experts. Send us an e-mail at firstname.lastname@example.org, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally