Choosing a market or niche is surely one of the most difficult decisions you will need to make for your online business. Some people have a wide range of skills and interests, and it becomes tough to choose just one of them. Others might have a problem finding even one topic that they would have enough interest in to build a business around. In this lesson, we will describe the factors that you should take into consideration before making your decision. Before that, however, we are going to take one step back and investigate the market and niche concepts.
What Is A Market?
A market is any structure or set of arrangements that allow buyers and sellers to exchange products, services, or information. Notice that markets may or may not have a physical and defined location. The shopping centre in your town is an example of a market that has a physical location while the worldwide market for futures (a type of financial instrument) has no physical location and the trading takes place electronically over the Internet and other networks.
Markets can also emerge deliberately or spontaneously. Your local shopping centre is a market that emerged deliberately because some people decided to build it. Illegal markets like those of drugs, on the other hand, emerge spontaneously from the interactions of buyers and sellers.
That is the classic definition for the market, and as you can see it gravitates around two main forces: supply and demand. In the business world, however, people tend to use the word “market” when they mean just the demand side of the market. That is, when they talk about the notebook market, they are referring only to the buyers of notebooks from around the world.
We will stick to the classic definition here. When we talk about entering into a market, therefore, we are talking about aligning ourselves with the sellers (the supply side), and trying to understand and to address the needs of the buyers (the demand side).
What Is A Niche?
A niche is a general area of interest or stuff that one or more people do. It does not matter if millions or only dozens of people are interested in it. As long as there is a person interested in something, we could call it a niche. Technology is a niche.
Computer is a sub-niche of technology, although also a niche in itself. Notebook is a sub-niche of computers and of technology, and still a niche in itself.
If you happen to collect key rings made out of frogs, it would be a niche. A niche with only one person (or so we hope), but still a niche.
The Relationship Between Markets and Niches
A key difference between people inside a niche and people inside the demand side of a market is the fact that the former may not need or want to spend money on it. For example, people inside the gadget niche might just be interested in reading and learning about the gadgets, and not necessarily in buying them. People inside the demand side of the gadget market, on the other hand, are interested in purchasing those gadgets.
Obviously, there are intersections between the two groups. In fact, there are good chances that someone inside the gadget niche will also be inside the gadget market, and vice-versa. But, that is not necessarily the case. In order words, someone can just be interested in learning about gadgets and not in purchasing them. Similarly, someone can just be interested in purchasing gadgets to solve his problems, but he might not be interested in reading or learning more about those gadgets at all.
The Venn diagram below illustrates the relationship between the people inside the gadget niche and the gadget market.As you can see, there is a big overlap, because someone that is interested in gadgets in general is also likely to purchase them regularly. The size of the overlap will vary from niche to niche and from market to market, though.
Take a look at the diagram for the Ferrari niche and market, for example.The overlap is much smaller because a great portion of the people interested in reading and learning about Ferraris will never have the money to buy one. Similarly, most of those who buy one are rich individuals that have money to waste, and are more concerned with the status and not necessarily with learning about the car they just purchased.
Market or Niche?
After reading about niches and markets, you could be asking yourself: “OK, but should I choose a market or a niche, or both?”
As we mentioned before, one of the key differences between niches and markets is the fact that people inside a niche may not necessarily want to spend money on it.
If you are going to sell a product or offer a paid service online, therefore, you need to think in terms of markets.
If, on the other hand, you are going to use a business model based on content creation or free services, say a blog that earns via advertising or a social network, then you need to think in terms of niches.
Sometimes this distinction will be too subtle to matter. First of all because, as we saw earlier, niches and markets tend to overlap. Secondly, because even if you decide to sell a product or service, you could still promote it to certain niches, using the company blog. For example. You would do that with the hope of transferring some people exclusively on that niche into your market (i.e. turning someone with a superficial interest into an actual customer).
There are some points that you need to take into consideration when making this choice, though, and we are going to cover them below.
How to Choose a Market?
In the second lesson of this training program, we talked about strategic planning, which is essential to any successful business. Strategic planning will also help you choose a market where you can sell your products or services. As you probably remember, under a strategic analysis we need to evaluate both the internal and the external factors of a project or business. That same analysis can be used when choosing your market. The internal factors are your vision, value proposition, and resources. The external factors are the demand and supply forces, and the barriers to entry.
Let’s talk about the internal factors.
First of all your market must be aligned with your vision. If your ultimate goal is to have a successful software company, entering into the real estate market would make no sense, right? The starting point for your decision must be your vision. By now you should have it written down somewhere (if not, do it!), so just refer to your vision and evaluate what markets are aligned with it. Again, considering someone with the vision of creating a software company, any market where buyers want to purchase software in one form or another could work. Examples include the financial software market, the web publishing software market, the productivity software market, the gaming software market and so on.
The second and third factors to consider are your value proposition and resources. How are you going to create value for your customers? What skills, strengths and resources you have that could be used to create that value? Suppose that the person who wants to create a software company has a professional experience in financial companies, and also has a good knowledge about accounting practices. It would be much easier (and logical) for this person to create value with a financial or accounting software than with a web publishing platform, for instance.
Now let’s talk about the external factors.
The demand and supply forces are the most important factors here. Profitable markets are those where the demand is higher than the supply. On those markets, prices tend to go up, enabling the companies to operate with higher margins. In other words, you are looking for markets where the needs or wants of customers are not being addressed completely or adequately by companies present in that market.
Referring back to our example of someone that wants to run a software company, entering into the market of productivity and collaboration software would probably be wiser than entering into the computer operating system market, because on the latter the demand and supply forces are almost in equilibrium, while on the former, they are not.
Another factor to take into consideration on your external analysis is the barriers to entry on each market. Entering into the commercial airplane market could be profitable if you consider that there are only two major players on the supply side (Boeing and Airbus). The problem, however, is that such market has huge barriers to entry. You would need to raise billions of dollars in capital before being able to start projecting and building commercial airplanes. Before choosing a market, therefore, you need to make sure that either its barriers to entry are low, or that you have the necessary resources to get in.
Notice that you have two options to structure your research now. The first one is an inside-out approach. You start with the analysis of the internal factors, and then you try to find markets that are aligned with the results of that analysis and that could be profitable.
The second option is the outside-in approach. You start evaluating what markets would have low barriers to entry and that could be profitable judging by the demand and supply forces, and then you filter the ones that are aligned with your internal factors.
There is no consensus among managers and academics around the world regarding which is the optimal method. Try both of them and see what results you will get.
How to Choose a Niche?
If you don’t plan to sell a product or service, at least not initially, you can think in terms of niches and not markets. With a blog or website that offers free content, for example, targeting a niche instead of a market is more logical. Your main goal will be to find people that are interested in the content that you will produce, and to engage and convert them into loyal readers or users. You could still monetize that blog with advertising and with other indirect methods, obviously, but you won’t need to sell anything to your audience.
While carrying out an analysis with internal and external factors can also be useful for choosing your niche, there are three factors that need special attention here:
Most blogs and websites will take months, if not years of work before they become really popular and successful. If you are going to be the main person creating the content for your blog or site, you will need to spend hours and hours, day after day, crafting that content. Unless you have a passion for it, therefore, sooner or later you would get burned out and would probably just abandon the site altogether.
Do not pick a niche just because it appears to be profitable or because many people are making money with it. You need to have passion for what you are going to create.
Obviously, the ideal situation is one where you are passionate about the niche, and where the niche itself is a profitable one. If you need to prioritize between passion or money, however, go with passion.
One exception to this rule is the case where you will not be producing the content directly, but rather managing the site. For example, there are web publishers that create sites in a wide range of topics, and hire staff writers to take care of the content. Under this business model you won’t necessarily need to love the niches of your sites, but just to find writers who do.
Just like focusing on multiple projects at the same time is a mistake that many entrepreneurs make, focusing on many topics and niches at the same time is a mistake that bloggers and webmasters do.
People with a wide range of interests sometimes try to put them all together in a single website. They will write about technology, cooking, local events and even comment on the latest political scandals.
Why is this a mistake? Because such website would have no clear focus, and it would become harder to attract visitors, let alone to convert them into loyal readers.
The higher the number of topics that you cover inside a blog or website, the higher the chances that one of those topics will not interest, or perhaps even annoy some of your visitors. People that are interested in technology might not be in cooking and vice-versa.
The higher the focus of your site, the easier it will be to promote it, attract visitors and convert them into loyal readers. Moreover, sites with a very specific target audience tend to attract more advertisers.
3. Audience Potential
Be careful not to confuse having a sharp focus with having a narrow niche. Focus is about the relevancy and homogeneity of your content, and it has nothing to do with the size of your niche. A certain website could be focused on technology, for example, which is a really broad niche. That site could talk about things as different as computers, mobile phones, and the Internet, but it would still be focused because they all belong to the technology niche.
Picking too narrow of a niche, on the other hand, is a common mistake among bloggers, and should be avoided. If you plan to make money or to build a business around your website, it needs to have a good audience potential. Writing about something that you are passionate about, but that interests only a dozen people more, would not work.
For example, you could decide to write a blog about white tigers. You love them, and the blog would also have a very sharp focus. Could it work as a business or generate revenues in the future, though? Probably not, because not enough people are interested in white tigers.
Remember that the success of content websites is inevitably attached to the traffic they will manage to attract.
On the next lesson, we will cover exercises and strategies that you can use to brainstorm ideas for markets and niches, and how you can test their potential.
- Review the concepts of market and niche. It is essential to understand those concepts and to know the difference between them.
- If you plan to sell a product or service, analyze both the internal and external factors, and try to identify suitable markets for your projects. Remember to use both the inside-out and the outside-in approaches.
- If you plan to have a content website, think about the topics where you have passion for. Exclude the ones that would have a small potential audience. Then perform an analysis of the internal and external factors to see what niches have the best fit.
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