The Future of Small Business: Find a Niche
25 July 2006Anyone who is contemplating starting a small business ought to take a look at two books: The Long Tail by Chris Anderson and An Army of Davids by Glenn Reynolds, the Instapundit.
The two books both deal generally with the idea that the future of business will involve a lot more small businesses than we have today, often focused on extremely tiny niches. Rather than a big, generic business, both books believe consumers will in many cases turn to small, focused businesses that are able to thoroughly understand and dominate the market for a small set of customers. The phrase “long tail” comes from the idea that these businesses are carving out a chunk of the market on the tail end of a graph of consumer interest, where only a few people reside. The phrase “army of davids” refers to the ability of a number of individuals, often working partly or entirely out of a desire to have fun, to utilize modern technology to outcompete the Goliath businesses.
One example of this phenomenon Reynolds gives here is a woman who put herself through college selling adult diapers on E-bay to men with a “baby fetish.” This, obviously, is an extremely small niche. It wouldn’t be profitable for a big diaper company to try to meet the needs of a tiny, weird consumer segment. But one person did it and made a big chunk of money. Less weird examples include microbreweries tailoring themselves to the tastes of a small minority, people using the cheap modern cameras and software to film low-budget documentaries and movies that only a few people like, or the numerous blogs that address a very small set of readers with common interests.
The moral for someone looking to start a small business today is this: you can start a very profitable business meeting the needs of a small group of people. Underwater basketweaving may never have many adherents as a hobby - but the cost to make and sell things tailored to a hobby in small numbers is decreasing rapidly. And the Internet makes it much easier to find a group of people with like interests, even if only one in thousands has the same interest as you. So if you’re thinking of starting a small business, ask yourself whether there’s a market that isn’t being served because it’s too small. Then look at whether you can serve it yourself on the cheap - and make a tidy profit doing so.
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