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Carving Your Special Niche

By Valorie Seyfert In 1996, when I co-founded CUSO Financial Services, L.P., a lot of factors came together to convince me that there was untapped potential in an underserved corner of the securities industry: credit unions. At the time, I was a partner in a San Diego law firm that represented financial institutions. From what I heard from my clients and from speaking at industry gatherings, credit unions -- in an effort to retain members -- wanted to offer investment products to their clients under their own brand, rather than that of a third-party provider.

As vendors to the credit unions, the brokerage firms had no incentive to be transparent. After all, if the members of those credit unions wanted to defect, the brokerages would be more than happy to sell them competing products or add them to their own client rosters. Through an industry group, I met my business partner, Amy Beattie, a former securities-firm executive. Amy and I worked together to set up a brokerage firm for a client and found we worked extremely well together.

CARVING YOUR NICHE. A lot of serendipitous factors came together to prompt the launch of CUSO Financial Services. However, building our niche company has been anything but serendipitous. In the past eight years, our annual revenue has increased to $47 million. We have 50 employees at our San Diego headquarters, and we market through 250 registered full-time sales people nationwide.

Getting to this point has involved a number of steps, both strategic and calculated. That is the case for most niche businesses. What follows is a look at what you must do to make yours thrive.

Make sure the niche is customer-driven.

In the heady glow of that Eureka moment that occurs when you uncover your niche, it's easy to get carried away and assume that customers want to buy what you have to sell. Don't. Instead, talk to them. We never made assumptions. Instead, we listened and learned. Our potential customers, for example, feared losing members and wanted their investment products to have the look and feel of their organization. In their distress we were able to zero in on co-branding as central to the program that we would design for them.

Work with customers to refine the niche opportunity.

As we tailored a financial-services program for credit unions, we asked for feedback at every step and from all constituents -- sales people, supervisors, executives, and directors -- and we refined our product accordingly. In the early days, we wanted the credit unions to manage the program in-house. However, we quickly learned that was too big a step for every credit union, especially those evolving from a service-oriented to a sales-oriented culture. Instead, we designed a program that allowed programs that were not ready to migrate over a period of two to three years.

Become an insider or expert.

Customers in niche businesses tend to work with vendors that are established and well known in that specialty. Thus, you must be perceived as an industry expert. In our case, we developed relationships with consultants, trade association officials, and other experts, who, in turn, recommended us. We also offered the innovative step of allowing the largest credit unions -- those with assets of $200 million or more -- to buy partnership units in our company, thus giving them a stake in the outcome of our business.

Build in safeguards to sustain a loyal customer base. At CUSO Financial Services, we now serve approximately 90 credit unions, among them some of the largest in the nation -- and we aim to keep these clients. Our partnership plan helps, as it assures that our interests and theirs are aligned. Even more fundamentally, however, we provide optimal customer service, technological solutions for efficiency, and reliable delivery of the promised products and services, as you must.

Refine your message as customers' needs change.

Even in specialty businesses, the only constant is change -- and change you must if your niche outfit is to thrive. Keep listening to your customers. For example, we have learned that our credit-union clients have become increasingly sophisticated about technology, so we've worked to set up systems for them that meet their greater expectations.

Adapt to those changing needs.

Now that credit unions have become savvy purveyors of investment products, many of our clients have indicated that they want to set up their own brokerages. At the same time, other brokerages have discovered the niche. In both cases, rather than thwart such efforts, we've offered to work with both our clients and the other broker-dealers, providing our services and expertise on a consulting basis.

Launching a niche business is like joining a fraternity or sorority. Building it involves capitalizing on a structure that is, by definition, limited. In order to do so, you must carefully research the needs of your market and tailor products accordingly. You must be perceived as an insider whom customers can rely on and trust. And you must adapt to the changes that are inevitable.

Valorie Seyfert, 45, co-founded CUSO Financial Services, a broker-dealer that targets credit unions, in 1996, and currently serves as president. Her co-founder, Amy Beattie, whose experience is in securities-firm management, is chief operating officer. Based in San Diego, CUSO Financial Services developed an integrated financial services program designed to allow credit unions to provide investment products as core offerings to members who might otherwise defect to nontraditional competitors, such as online brokerages. With annual revenue of $47 million and 50 employees, CFS markets its investment program through 250 registered full-time salespeople throughout the United States. About half of its 90 clients among them the nation's largest credit unions participate in the ownership of the partnership.

Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of, a resource for entrepreneurs that is sponsored by the nonprofit Ewing Marion Kauffman Foundation.

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