Having interviewed and collaborated with entrepreneurs across the globe, it’s safe to say that one of the key things they’ve all had in common is the dream of scaling their way to business success. Fortunately for our community, the same topic of conversation comes up time and again with the Buy Grow Sell podcast guests — and these business owners have some great advice.
If you’re going to buy a business or sell a business, and [you’re] in the build phase of that business, you need to niche down... I love the Warren Buffet quote – build a moat, deep and wide. You want a business that’s got a deep, wide moat. If you become a generalist in anything you do – unless you’re a $10B corporation – it’s a route to disaster.”
If you’ve ever dreamt about economies of scale, achieving the next level of business success, or growing your business to hold a strong market position, we think you’ll like the idea of sizing down to grow up.
How does this work?
Let’s deep dive into the mindset of finding and dominating a niche as a roadmap for success — as well as the tangible benefits gained by narrowing your focus.
Interestingly, some of our favourite guests also recommend thinking about your exit strategy from day one, even if you don’t yet have any plans of stepping back.
Regardless of your short or long-term intentions, zeroing in on a core speciality is one idea that we know has achieved results.
Go Small To Grow Big: The Importance Of Zero-ing In
Sounds counterintuitive, doesn’t it?
To the active listeners of Buy Grow Sell, the idea of finding and defending a market niche isn’t a new one. For those new to the build-to-sell community, in the Buy Grow Sell podcast, our CEO Simon Bedard interviews seasoned entrepreneurs who have run the gamut of acquiring, building, and selling businesses. And they have a lot to say about the importance of finding your niche and achieving business success.
Having a business niche means you have really narrowed down on the problem you solve. Organisations that zero in on their niche can sharpen their level of insight, expertise, and innovation instead of trying to do it all. The benefits of creating a market or product expertise are threefold, including:
- A better ability to solve your market’s problem
- A better understanding, connection, and engagement with your audience
- A clever way to make your business attractive to acquirers who recognise that you are the 'best in class' for what you do
While this sounds like top level jargon, in practice it’s quite simple.
Let’s look at an example.
Company ABC designs and produces women’s maternity wear using a patented textile technology.
Already targeting a specific audience with unique needs – expectant and post-partum Mums – Company ABC could:
- Apply their patented technology to other garments such as activewear, daywear, sleepwear, and undergarments, or,
- Specifically research, design, and develop a range of maternity activewear for women looking to exercise, stay comfortable, and feel supported during and after their pregnancy.
Company ABC has a niche - it designs and produces maternity activewear. While they have the options to apply their textile technology to all women’s clothing, let's assume they decide to focus on one unique segment of the fashion industry.
Company ABC invests their resources in innovating and manufacturing activewear lines alone.
The outcomes of the following strategy could result in:
- Strong market position as the go-to option for maternity activewear
- Ability to focus further research and development into textile, design, and manufacturing solutions for expectant and post-partum Mums
- Patented IP over the textile technology they developed (as well as potential future IP assets that may be developed throughout the course of research and development)
- Potential for increased market share and value to a potential buyer due to highly segmented audience and IP portfolio
Zeroing in on a small segment of the international fashion industry didn’t limit Company ABC’s opportunities for success — it strengthened their position. By deciding on a targeted market segment, the company streamlined their decision making process for future developments, innovation, and product lines.
Breaking down an industry as large as fashion into bite-sized manageable segments allows a designer to specialise. Within the maternity activewear industry, Company ABC can still expand into complementary ranges without diluting their niche advantage, such as:
- Sustainable textiles and eco-friendly manufacturing practices for an earth-friendly collection
- Designer high-end pieces with premium textiles for a luxury collection
- Expanding the fit and sizing offered beneath each of the activewear lines including bottoms, tops, outwear, accessories, and more.
How To Find Your Niche and Strengthen Your Market Position
I think one thing, which I would do more is to focus. We were doing corporate events, as well as hen parties, stag parties, basically bachelor parties. And I think that was a bit too much diversification for us. I’d [rather] focus on one thing and do it really well. The other thing is, to build some tech around it.
For many companies, finding a niche will often mean trimming away the less specific, less profitable, and the least scalable aspects of your business — and running with what works and what makes you unique.
For the company directors with their eye on big goals, narrowing your focus as a way to scale can be nerve wracking. Here are some things to consider:
1. While your target market may downsize – you'll have a market that knows you are the absolute specialist.
Some clients will be lost by drilling down into a further subsegment of your market. Fortunately, the clients whose needs will be better met by a more focused solution will be better targeted, connected with, and can open up two-way discussions about their ongoing needs and your product or service development. Your specialisation will attract more people that want to buy from the absolute 'specialists' in their field.
2. When you set yourself apart —you can charge a higher price
If you can do something better than anyone else - you have a way of keeping competitors at bay. In essence you have built a 'moat' that competitors can't across. Companies can build moats by strengthening their brands, achieving economies of sale, or producing a product protected by IP that no competitor can rival. In doing so, you'll no longer be compared against competitors. You will have achieved a sustainable competitive advantage, and you can price your product or service accordingly.
3. You can still scale laterally – and have an easier time doing so.
Narrowing in on your niche can streamline organisation-wide decision making from product development to marketing efforts. You will be to scale, and it will be easier to do so. Remember the example above? Company ABC has the opportunity to diversify across women’s activewear from bottoms to accessories and outerwear, all the while remaining committed to maternity clothing.
4. Having IP in your portfolio is one of your most valuable assets.
Try to build something that is saleable – now that sounds facile, but what I mean by that is building a portfolio of Intellectual Property… It’s about what you can transfer to a buyer with a level of certainty.”
Regardless of your long-term transition plans, tightly held IP is attractive to buyers. Looking for a good example of a business that leveraged their IP? Peter Hooker and his co-founder Christine Kininmonth sold a functional, practical, and much needed women’s maternity accessory. After almost two decades of business, their unique invention had been patented and trademarked and dominated the Australian market.
Knowing that both partners were interested in eventually moving on, Peter and Christine prioritised a final growth push. With the support of their advisory team a profitable sale was negotiated that saw their physical assets and a customer list go to one industry player and their maternity IP sold to an overseas buyer.
If you’ve wondered about the long-term potential plans of finding and sticking to a niche–this is one of the best examples we have. Whether you’re dedicated to an internal succession plan or interested in building-to-sell, buyers are attracted to specialities and profitable assets — and it’s wise to remember that even non-tangible assets can give you a good leg up in the market.
Completing The Buy Build Sell Cycle: Downsizing To Scale Up
The buy build sell cycle looks remarkably different from entrepreneur to entrepreneur–and then again among a business owner's different ventures. Regardless of your company structure, product offer, or client market, drilling down on a niche to increase value will always be a great tactic.
Among the many advantages of narrowing your focus, clear decision making, stronger connections with your audience, and market authority position can benefit your company both in the short and long term.
Getting clear and redefining your product or service offering doesn’t have to complement an exit plan–but it should always be a part of your growth strategy.
If you’re looking for more great insight from a community of entrepreneurs who have put in the work to scale their way to business success, check out more interviews on the Buy Grow Sell podcast. We believe that our community best succeed when they can connect with those who have gone before, each episode shares a familiar story, action tips, and key takeaways for the modern business owner.
At Exit Advisory Group we help entrepreneurs maximise company value and exit at the top of their game.
We do this by giving business owners the tools and strategies to design more profitable, efficient and enjoyable businesses to own - that are also less dependent on them. When they choose to exit, they are in the best position to unlock the wealth in their business and be rewarded for their hard work.
If you liked this article we'd love you to share it!