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When niching down, how narrow is too narrow?

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terrordread

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Dec 26, 2020
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First off, it seems like the prevailing wisdom today is that service-based businesses must choose a niche and serve them as a specialist in that space. I'm of the mind that this does make sense. Do you agree; yes, no? If not, why?

If you do think that niching down should be a principle of business, at what point does it become so specialised that you begin excluding people or businesses you'd be perfectly suited to serve?

The example I'm working on is education. My business serves companies in the education space and I'm thinking about how narrow to take the niche.

Level 1 - I guess would simply be education businesses (think colleges, universities, driving schools, music schools).

Level 2 - might be online education businesses and companies (course creators, the open university, Edx).

Level 3 - could be online education technology companies (Masterclass, Duolingo, Coursera).

Level 4 - may be online education technology companies built on blockchain (Studyum, Blockcerts, APPII).

I would imagine that a business that provides marketing or web development for online education technology companies built on blockchain would also be just as well equipt to serve online education technology companies that are not built on blockchain..

Do you think exclusively targeting companies with blockchain technology products would pay off in how relevant you seem to them versus the price of strategically repelling any business that doesn't fit into that category?

I'm very open-minded on this and happy to discuss :)
 
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Jerma

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Things like that are pretty subjective... A good rule of thumb I can think of is this:

Niche down until it hurts; niche up until it works.
 

easy850

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Aug 8, 2021
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From my understanding, niching down allows you to both charge higher and deliver quicker, so you can make the same amount making 12 websites a year for online education technology companies built on blockchain than 24 websites for online education technology companies built on web 2.0 technologies.
 

Edgar King

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First off, it seems like the prevailing wisdom today is that service-based businesses must choose a niche and serve them as a specialist in that space. I'm of the mind that this does make sense. Do you agree; yes, no? If not, why?

If you do think that niching down should be a principle of business, at what point does it become so specialised that you begin excluding people or businesses you'd be perfectly suited to serve?

The example I'm working on is education. My business serves companies in the education space and I'm thinking about how narrow to take the niche.

Level 1 - I guess would simply be education businesses (think colleges, universities, driving schools, music schools).

Level 2 - might be online education businesses and companies (course creators, the open university, Edx).

Level 3 - could be online education technology companies (Masterclass, Duolingo, Coursera).

Level 4 - may be online education technology companies built on blockchain (Studyum, Blockcerts, APPII).

I would imagine that a business that provides marketing or web development for online education technology companies built on blockchain would also be just as well equipt to serve online education technology companies that are not built on blockchain..

Do you think exclusively targeting companies with blockchain technology products would pay off in how relevant you seem to them versus the price of strategically repelling any business that doesn't fit into that category?

I'm very open-minded on this and happy to discuss :)
I think the basic premise is that the "riches are in the niches". Where the more niched you are, the more appealing the services you offer are to your target audience, and thus the higher the potential profits you can make. In that sense, I agree.

Here's a classic example. If you wanted someone to do your surgery, who would you pick... a surgeon or a general doctor? And who would you pay more for that service? Hopefully, that helps answer your question there. Even if their services may end up being the same, the average human being likes to see more of themselves and experiences out there in the world and we just think since it's more specific to us, there's a much higher probability it will work positively on us.

If you ask me, 3-4 levels of niching is good enough.

If you go down to "online education technology companies built on blockchain" you'll definitely be more relevant and visible than a business simply in the education businesse space. Thus, you can charge 10-100X more than them all other variables of service held constant, and will be picked in an ad against theirs. Your offer would also be seen as inherently more valuable due to the basic law of demand and supply.

But when does it get too narrow? When there's no more demand. Search google trends to see if you can gain an idea of the market size. You want to think about how many people you need to sell to, to break your monetary goals at the price your product is charged.
 
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terrordread

Contributor
Read Fastlane!
Read Unscripted!
Dec 26, 2020
29
20
I think the basic premise is that the "riches are in the niches". Where the more niched you are, the more appealing the services you offer are to your target audience, and thus the higher the potential profits you can make. In that sense, I agree.

Here's a classic example. If you wanted someone to do your surgery, who would you pick... a surgeon or a general doctor? And who would you pay more for that service? Hopefully, that helps answer your question there. Even if their services may end up being the same, the average human being likes to see more of themselves and experiences out there in the world and we just think since it's more specific to us, there's a much higher probability it will work positively on us.

If you ask me, 3-4 levels of niching is good enough.

If you go down to "online education technology companies built on blockchain" you'll definitely be more relevant and visible than a business simply in the education businesse space. Thus, you can charge 10-100X more than them all other variables of service held constant, and will be picked in an ad against theirs. Your offer would also be seen as inherently more valuable due to the basic law of demand and supply.

But when does it get too narrow? When there's no more demand. Search google trends to see if you can gain an idea of the market size. You want to think about how many people you need to sell to, to break your monetary goals at the price your product is charged.

That's actually a good way of breaking it down. I was worried that going to a 4th level niche would make it too difficult to find enough clients. But really, if you charge a 5,000 monthly retainer plus performance fee (undefinable) and operate at an 80% margin, you would need only 25 clients to net 100,000 profit per month and that's without any performance fees.

25 clients, 5000 retainer, 80% margin = 1,200,000 per year profit. Obviously, this is very simplified and excludes some important factors like churn and tax, but those things are variable depending on the way you manage the business.
 

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