Sustaining a niche business

There's a gap in the market but is there a market for the gap? Here’s how niche businesses can find and maintain a corner of a market while fending off competition.

Many niche business owners start out as frustrated consumers, disappointed by the absence of a product or service in the marketplace. But, although there may be a gap in the market, potential business owners need to know about the gap between being a frustrated consumer and running a successful niche business.

A niche business is a specialised business offering products or services to consumers who seek something other than what is offered by existing businesses or who have been overlooked by existing businesses. Some niche businesses start via an invention that fulfils a market need, while others use innovation to bring existing products or services to new markets.

The primary key to success when selling to a niche is making your business market-driven, not product-driven, says John Kapeleris, deputy CEO of the Australian Institute for Commercialisation (AIC). "A lot of product-driven ideas fail because when the great idea has no identifiable market need it’s very difficult to commercialise." Be realistic about how many people would need and be willing to pay for your product because if no one wants it except you, there's no business in it.

Kapeleris suggests new niche businesses avoid this trap by conducting thorough market research to test the niche before launching the product. "You need to research market feasibility. The idea might be technically feasible, but you need market feedback very early on. Involve a couple of potential users within the market and get their feedback," he advises.

Because niche business owners often fulfil their own needs as a consumer, it's easy to become complacent about the market. Be aware that this can blinker you from expanding your market reach. "As part of your strategy, identify the fields of use. What you can do to maximise return is leverage off those fields and license your product in various markets," Kapeleris says. “Most people usually have one field of use and that’s the most obvious one and the one they focus on. We usually talk to people about more fields when they come to us.”

Points of Difference

When Karen Lavecky started her dim sum company Lotus & Ming five years ago, she knew of several players already selling similar products but she identified that traditional Chinese dim sum had flavour and dietary limitations. "I recognised that although the majority of Australians love Asian food our constitutions don’t necessarily feel the same way. Many of us react badly to the preservatives and additives found in traditional dim sum and we’re not offered the variety that the western palate needs," she explains.

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Lavecky wanted to rid dim sum of additives such as MSG, a common flavour enhancer, and cornflour, which added weight to the product. Standard flavours were seafood or pork dumplings but Lavecky knew many people were allergic to seafood and people of some religions would not eat pork. From there she was also quick to service vegetarians, vegans, and consumers affected by coeliac disease (gluten intolerance). In this way, she extended her market by recognising different needs, developing suitable product to cater for those consumers.

By developing fillings using A-grade produce and with HACCP (Hazard Analysis Critical Control Program) accreditation, a strict certification that is the minimum standard in some market segments, such as hotels and airlines, Lavecky’s product stood above similar product found in Chinese grocery stores. This justified a higher price point and enabled her to sell to the premium end of the market, including David Jones, fine food stores and catering firms, which Kapeleris says is common. “Niche products can often sell at a higher margin because they add value to the marketplace.”

Fostering consumer trust in the Lotus & Ming brand also formed a sizeable part of Lavecky's business plan. She notes that it's important that consumers feel confident in the product they’re eating and have faith in the brand they’re purchasing, especially in light of doubts over competitors' imports, compounded by cases such as cardboard filling found in Chinese-made buns.

Kapeleris calls this type of branding a business' 'sustainable competitive advantage', the point of difference that sets a business apart from competitors. "It could be having a strong brand with your product or maintaining product consistency. If you’re able to do that, it differentiates you from others," he says.

Things that you do, or don't do, can be leveraged in your marketing identity, making your brand memorable. In Lavecky's case, her product has a few points of difference, for example a vegan may remember her product as the only dim sum he can eat, or a catering company may require a HACCP-accredited supplier.

You can exploit a more official competitive advantage through the use of patents for certain types of product. Leanne Preston, founder of Wild Child, the 2007 Telstra Australian Business Woman of the Year, started her company when she discovered that the head lice treatment she bought for her daughter was toxic and full of harmful chemicals. She developed Quit Nits, a natural remedy that has been clinically tested, classified as a medicine, and patented around the world.

Protecting intellectual property (IP) benefits a niche business in a few ways. Before applying for a patent or trademark, you can research other protected products and gauge the market with regard to potential competition. As Kapeleris says, the freedom to operate is very important in the early stages of doing a market assessment because you need to determine whether someone else has a similar idea, product or service out there.

But the best use of a patent is the free rein it gives for a limited time. "A patent protects the novelty and utility of the new opportunity for 20 years," he explains. "If you are able to use patents or trademarks or some sort of design registration, it gives the owner of the IP a chance to exploit that exclusively."

Diversify & Protect

Wild Child is a good example of a business that has explored several avenues to maintain and expand its niche over 10 years. The most obvious way to expand is to diversify. In addition to the original Quit Nits solution, which eliminates lice, Wild Child also produce preventative treatments and a range of natural sunscreens, leveraging off the natural aspect of Quit Nits. "We'll have other products as well. Now that we have a patent behind our product we can commercialise technology for agriculture, veterinary and health," says Preston.

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She has also expanded beyond Australia, so although the percentage of consumers who require Quit Nits may not have changed much, it's coming from a world population. "Europe has been a really good market for us, we’ve sold into major pharmacy chains Boots, Lloydspharmacy and Richard Ward salons. We’re going to have an aggressive marketing campaign in the countries we sell to, so we can strengthen our position."

Product and brand are not the only things connecting a niche company to the market, Preston has also anchored Wild Child with her profile. By representing her company at awards and writing a book, Leanne Preston and the Wild Child Story (Random House), Preston represents the principles behind the business and can highlight issues—such as poisonous children’s medication and toxins in the environment—in a personable, rather than corporate, manner.

Established niche businesses need to keep an eye on their target consumers because as society's tastes and preferences change, so will the market. This means you will either need to evolve with the market or innovate and find new markets. Lavecky says her business has done both–her response to customer fee
dback has increased her product range, but Lotus & Ming has also sold into areas she didn't anticipate.

"We’ve started doing some product development for the Greater Union group. Gold Class is their premium cinema and we have been asked to develop products for their menus," she says. "We also recently began working on a range of healthy Asian-style products such as large baked spring rolls for school canteens. They are all low in fat, giving children a healthier option for snacking at school. It was not at a retail level, nor at a corporate level, school was not something we had taken into account at the beginning."

Another area where niche businesses can be flexible is 'co-opetition', which Kapeleris says is a combination of co-operation and competition. He points out that a niche may be defined by the way a product reaches the market. For example, eBay took an existing auction format but modified it for the internet, which seemed to compete with online retailers until those retailers realised they could use eBay as a way to sell their products to consumers who may never have discovered their brand otherwise. "In my previous work in the biotech sector I found that with some of my competitors, even though we were competing in one market sector we were using them as distribution channels in other markets," says Kapeleris.

Nurturing a niche product or service can be a difficult process if you don't have a clear profile of your market. But if you do your research thoroughly and develop a product identity, it is no more difficult than starting any other type of business. Once you’ve navigated the early stages, continual innovation is the key to sustaining your corner of the market, and even capturing new consumers. A niche business will excel by exploiting its lead in the marketplace and leveraging differences. With this advice in mind, isn’t there a little niche to exploit in all businesses?

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