Scratch a niche to find small business success

Speaking of competitors, the number of those offering similar products or services will help you figure out if your niche is too narrow--or too broad and not even a niche anymore. There is no rule of thumb since each industry is different, but you should find at least a couple of competitors who do something similar to what you are proposing in your market, says Terry Neese, a small-business expert and president of Women Impacting Public Policy, a national advocacy group based in Washington, DC.

“You don't want to be so niched that you're the only one out there, and no one quite understands what you're talking about," Neese says. "On the other hand, you don't want to be one of dozens, because then the niche is too saturated.”

Go through last year's telephone book in your market and contact competitors in your niche to see if they are still in business, says Gene Fairbrother, lead business consultant in Dallas for the National Association for Self-Employed and president of MBA Consulting Inc. Look for at least a 50 percent survival rate within a 50-mile radius. If your business has national appeal, do the same thing with telephone books in three to five other comparable markets, he adds.

“A good survival rate could indicate that your idea has lasting potential and is not too faddish, which is a danger for overly trendy niche businesses," Fairbrother says.

You should also interview potential customers. This is important because your clients are very defined and somewhat limited, and you want to make sure they have a real desire for what you're offering.

“You can't market to the world with a niche business, so you want to make sure you are meeting the needs of your particular clientele," Fairbrother says. "Without that, you are working in the dark.”

Finding out your customers' needs can be done in a variety of ways. Conduct customer focus groups with five to 10 people, ultimately talking to about 100 individuals, who can tell you what kinds of products or services they want, how they want them delivered, what's missing from what is already available and how much they are willing to pay, Kase says. Next, create a survey. A trade or professional association in your field may be able to sell you a list of individuals or companies you can interview, either locally, nationally or both. Expect a 10 percent response rate--which translates into 10 completed surveys for every 100 sent out, Fairbrother says. You can also query potential customers at trade-association or group meetings devoted to your niche.

“If you are selling products just for birds, ask your local pet shop for the name of a local bird-lover's group," Fairbrother says. "Ask these people what products they need most and how yours can fit in. Go one step further and attend trade shows for bird-lovers, and talk to the masses.”

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