If you’re a startup, you’re probably all too familiar with the word ‘niche’. If you’re not yet familiar with this word, let me start by saying some people pronounce this word very differently. It’s either niche like quiche with an ‘n’ or niche like stitch with an ‘n’. Personally, with the spelling, I feel like quiche with an ‘n’ is the correct pronunciation.
Despite having multiple ways to pronounce the word, the word itself is all about focusing narrowly on one product that appeals to a small and specific section of the population.
In the early stages of your startup, finding your niche is about finding the gap in the market. To do this, you need to have a narrow focus i.e. Who is your ideal client? Where do you find them? What problem do you solve for them? How is this different from your competitors or existing companies in this space?
If you’re familiar with the word ‘niche’, then you’ve probably heard the term CAC (Customer Acquisition Cost) which is the cost to your business of gaining new clients, such as marketing and staffing costs.
If you’re not retaining your clients, then your cost increases and your revenue decreases along with your company’s value.
Acquiring a new customer is anywhere from 5-25 times more expensive than retaining an existing one. According to research done by Frederick Reichheld of Bain & Company increasing customer retention rates by 5% increases profits by 25% to 95%.
So, while acquiring new clients is great, retaining them is better! This leads me to the ineffectiveness of niching down over the long term.
The easiest way to explain this is to think of the shape of a funnel. Small at the bottom and large at the top… much like a company’s product offerings when they start and when they’ve grown.
The reason the funnel starts small and expands is that when you’re starting you need to focus on maximizing your budget which means targeting the one audience and focusing all your market on that audience. Think of your starting demographic or audience as your early adopters (the people that are most likely to try your product). Then, as you grow, you will need to expand to capture the early majority and then the late majority – these are sections of the market. So, after your early adopters, who are the early majority that will follow and try your product? Let’s use Facebook as an example… Their early adopters were university students, their early majority were peers outside of university that were similar in age and their late majority are the older generations that have joined the Facebook bandwagon.
If you haven’t already noticed, Facebook captured different audiences primarily when they released different products. Older generations joined because the Facebook messenger is a great way to keep in touch with family abroad without the cost.
who offers less. Convenience is a ‘sticky’ thing.
It’s also most evident in the banking industry. The more products you have with a bank, the less likely you are to leave because it’s simply inconvenient to move all of your accounts.
So how do you offer multiple products in the short term?
Here are two easy ways:
Partner Up with Another Company
By working with another company that is aligned with your product means you’re adding more value to your customers. For example, an online health food company may team up with a gym giving their clients the ability to live a holistic lifestyle
Add Free Value
Using the health food company example, adding a free blog or free recipe section gives added value to your clients, it also helps to inspire your clients to try the recipes on your site and buy the products that might be in some of the recipes.
Note: If you’re adding something like a recipe section for free, you’ll turn off prospective purchasers if you only highlight recipes that use your products.
When you’re starting out, remember that niching down is good in the short term… but long term you need to be able to expand and plan for that expansion so that you know other avenues you can explore to capture market share in your industry.
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