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Discover an Even More Distinct Market and Then Capitalize on It

Content provided by Black Enterprise

By Marcia Layton Turner  

Are you thinking about starting a business?
Before you do, here's a pop quiz: Experts say this is a good way to ensure your business survives and thrives. Entrepreneurs (including the founder and publisher of BLACK ENTERPRISE magazine) have grown businesses for decades this way. And yet only 10% of small businesses out there are doing it. What is it?

The answer: carving out a niche within a niche -- a smaller segment of a larger market with common needs or purchasing habits. According to experts, choosing a niche is a smart strategy for businesses with fewer resources than their corporate competition. They say that entrepreneurs who can manage this are much more likely to succeed and thrive than their general-market counterparts.

A niche magazine, for example, might target businesspeople as readers. A niche within a niche might be black businesspeople. It involves separating the target market into smaller chunks. While you're swimming in a smaller pond, the idea is that by filling the niche, you'll capture a greater percentage of that subsegmented market. This results in less competition and greater profits, because niche customers are less price sensitive, says Portland-based Lynda Falkenstein, author of Nichecraft: Using Your Specialness to Focus Your Business, Corner Your Market and Make Customers Seek You Out (Niche Press, $24.95).

So why aren't more entrepreneurs adopting a niche strategy? "Many are afraid that it will limit their opportunities, when the opposite is really true," says Terri Franklin, an entrepreneur from Atlanta who started her own hosiery business. At the outset, many small business owners are concerned with attracting as much business as they can and have trouble accepting that narrowing their customer focus may be more profitable.

Franklin looked to her own experiences and recognized the potential for success in niche-marketing. Having once worn pantyhose with names like Red Fox, Cinnamon, Gentle Brown, and Mahogany, most of which didn't match her skin tone, Franklin, 48, understood first-hand the plight of women of color looking for flesh-matching hoisery. When she found a color that accentuated her legs, Franklin would buy several pairs. Sometimes, she would buy everything in stock so that she wouldn't have to hunt for them again.

Franklin, a sales specialist at AT&T, recognized a hole in the hosiery marketplace and came up with an idea for hosiery for women of color. "We've all worn some hideous colors," Franklin admits, summarizing the experience of many women who have been frustrated by the sparse selection of hosiery in pleasing deeper brown tones. Franklin's solution was to buy pantyhose in black, navy, or a color that complemented a particular outfit, sidestepping the challenge of locating a pair that wasn't a match.

Her brainchild, Atlanta-based Accents of Color Hosiery, was launched in October 2002 and boasts seven shades of brown and five other hues -- jet black, off black, white, navy, and cream. The company has been growing at a rate of about 20% annually. Franklin expects 2006 sales to total $200,000, but they could go much higher if pending deals with Nordstrom and Macy's come through. Those retailers, plus five other outlets she has targeted for 2006, have hundreds of locations that could sell her hosiery.

Using a list of hosiery manufacturers provided by The Hosiery Association, Franklin began contacting potential manufacturers in search of one willing to take a chance on a startup. She also spent months studying major hosiery marketers and learning about her market. The research reported that, on average, African American women purchase 24 pair of hose annually and make up 24% of the pantyhose market. Rather than target the niche.

While choosing a niche strategy may seem risky, because the size of the potential market is reduced, doing so can actually fuel a small business's growth. By zeroing in on its very best business prospects from the beginning, a company's marketing dollars yield a much higher return on investment. The business costs are comparatively lower, viral or word-of-mouth marketing occurs much faster, and customers are generally far easier to identify. They're also very loyal, say Jennifer Basye Sander and Peter Sander, co-authors of Niche and Grow Rich: Practical Ways to Turn Your Ideas into a Business.

Despite their many advantages, niche businesses are the exception rather than the rule. The Sanders estimate that no more than 10% of all businesses today are niche-focused. The tendency on the part of most entrepreneurs is to target demographic markets with huge populations, such as the 18- to 25-year-old crowd, or everyone within a certain zip code, rather than zeroing in on customers with common interests and needs.

As business owners marvel at the success of niche-oriented businesses -- think Starbucks or Curves, for example -- some are adopting a similar strategy. This may explain why the number of niche-focused enterprises is increasing. "Niche businesses are on the rise because people are recognizing that their biggest competitor is a Wal-Mart" says Jennifer Sander. "They've also seen how mid-sized companies have struggled against the big guys." Trends show that if mid-sized companies can't compete by emulating Wal-Mart, smaller businesses will likely face the same challenges. To succeed, a new approach is necessary. For an increasing number of entrepreneurs, that approach is choosing a niche.

However, in business, there are never guarantees. Even playing in the smaller sandbox comes with its own set of risks. There is the possibility that sales won't materialize from your niche customers, for example. At least that's what Franklin feared, though she has since seen that her market is both broad and deep, yet still very focused.

Another risk, says Falkenstein, is straying from your niche. Once you become known for one thing, moving too far from your specialty may encourage customers to shop elsewhere. Also, it's important to stay ahead of your niche -- to anticipate what your customer base will want next. Expecting your business to remain the same is risky, she says. "A good niche is dynamic," she points out.

When it comes to planning a wedding, attention to detail is important. Rena Puebla knew this when she bought her wedding cake toppers -- the little bride and groom that have traditionally adorned wedding cakes. After an exhaustive search, she had no luck finding figurines that suited her and her fiancé. She had to settle for two doves on top of her wedding cake instead of an attractive cake topper featuring an African American bride and an Asian groom. But instead of accepting that there were few options for interracial couples, Puebla, whose husband is Japanese, decided that she had found a business opportunity worth exploring.

Having worked in the wedding industry for years as an event planner, Puebla knew that the wedding market was strong. In fact, the amount of money spent on weddings has been increasing for years, with an average wedding costing more than $26,000 -- $655 is often spent on the cake alone. In total, the 2006 wedding market is valued at $58.5 billion, according to theweddingreport.com.

Puebla, of Costa Mesa, California, also knew that interracial marriages had become more common. Therefore, in January 2005 she and one of her former gift-basket suppliers, Ellie Genuardi, established Renelli International to fill a niche market need. "We zeroed in on interracial wedding-cake toppers right away," says Puebla, for several reasons, the first being the dearth of competition. The second was that the number of interracial marriages has increased more than tenfold in the last few decades, according to the Washington-based Population Reference Bureau. In 1970, 300,000 interracial couples made up 7% of all marriages, increasing to 1.5 million in 1990, and more than 3 million by 2000, or 5.4% of the married population.

Puebla and Genuardi also believed that by pursuing a well-defined niche, it would be easier to identify their market and sell to them. By staking out a niche within a niche -- a specific type of cake topper within the wedding accessories category -- they've successfully carved out their own space. Sales are up 400% over last year's sales of $100,000, with 2006 sales projected to be $500,000.

Another way the owners have differentiated the company is by positioning it as a wholesaler, not a retailer, marketing its products to salons, bakeries, florists, and wedding boutiques. Although it was initially challenging to land accounts, "we had to be persistent" says Puebla. Attendance at bridal shows and appearing in an issue of Cosmopolitan during the summer of 2005 has boosted their visibility and their business considerably. Renelli invests in marketing through major wedding channels, such as TheKnot.com, to target brides, and then refers them to local retailers who carry Renelli toppers.

Couples can choose from among 98 possible combinations of Renelli brides and grooms, which are interchangeable, including dark hair with African American features, dark hair with Latino features, and dark or blond hair with Caucasian features. The durable polyresin stone figures have delicate facial features and sophisticated tuxedos and gowns commonly found on more expensive toppers; Renelli's retail for $69.99.

One of the benefits of establishing a niche business, say the Sanders, is that "Once you've built one successful niche business and understand the thought process behind it, what is to stop you from using that same knowledge to build a similar business that serves a slightly different niche, or add products and services to more profitably serve the existing niche?" Through a phenomenon called "cross-over niching," Franklin saw an opportunity to increase sales by selling other products to her customer base. There was also a strong indication of a void in the market, she says, which she knew she could fill.

Although Accents of Color Hosiery initially specialized in ultrasheer pantyhose for women of color, Franklin has since recognized the potential to expand her niche -- to crossover. To broaden her product line beyond plain pantyhose, she is in the process of adding a number of new products that her customers have been asking for. They will soon be able to buy Lycra support hose, knee-highs, thigh-highs, shimmers, and personalized or designer pantyhose from Accents of Color. In addition, Franklin is adjusting her marketing to reflect the broader appeal of her products, which she didn't expect. The slogan of her company is now, "Accent your legs colorfully," so as not to exclude lighter-skinned women who have also embraced her line. "I thought my target market was darker-toned women of color, but I've found that all women of color have trouble finding the right shade," she explains.

She also discovered that this challenge was not limited to women in the U.S., where she has focused her marketing efforts. "To my surprise, ladies all over the world are finding me," says Franklin, thanks to her Website. "It's a global issue," she says, and sales to women in countries such as Romania, Saudi Arabia, Germany, Canada, England, and Africa are proof. "Women go to great lengths to get the right pantyhose."

Crossover expansion is also underway at Renelli, where the company's target market has broadened to include same-sex couples, who frequently have the same problems that interracial couples do when looking for wedding accessories. The response has been enthusiastic, with sales of same-sex toppers now accounting for 50% of the company's sales, especially from couples in Canada, reports Puebla. The company is also pursuing private-label opportunities, manufacturing wedding cake toppers for other retailers under their brand name.

Although starting any business has its risks, Peter Sander says niche businesses almost always have a better chance for success. "If you start broad-focused, you may not be able to survive," he says, while the opportunities for niche businesses seem limitless.

If creating a new niche business, or focusing an existing business, sounds like a smart idea, use these three strategies to hone in on the right niche for you:

Update an old idea. Rather than coming up with a revolutionary business idea, like the iPod or mail-order movies, put a new spin on an old idea, say the Sanders. Consider old business models for inspiration and envision how you would run them today. Is there a way you can introduce an age-old idea to a new audience? Think back for inspiration and then apply modern-day creativity to find a new niche.

Find something that has worked somewhere else. Look for business concepts that have succeeded in other markets that haven't yet appeared in yours, or try to identify types of businesses that are missing in particular geographic areas. For example, remember when Starbucks was a Seattle phenomenon? Think about the products and services you use regularly, or would use, and where you go to get them. Are there any missing in your locale?

Refocus a big idea toward a specialized market. "Another way to generate ideas for niche businesses is to break off a small piece of a big market and refocus it to a different audience," say the Sanders. Look for ubiquitous types of businesses with an all-encompassing target market and try and zero in on particular segments with different needs. Are there different market segments within fitness center users, hair-salon-goers, or dental patients, for example? Certainly. You just need to define which segment you want to target and what common need(s) they have that you can fulfill.

Once you've come up with potential niche businesses to investigate, you'll want to do your homework to confirm there is a large enough market to support your venture. If so, there's a good chance you can claim it as your own.
made up of the 149 million women, or even the 21 million African American women in the United States, Franklin found the sweet spot in the smaller subsegment within that niche: darker-skinned black women.

For everyone who has ever considered starting their own business, here's a guide to get you on the path to entrepreneurial success. And if you've already taken the leap, we have organizations at-the-ready to help you grow. Here are 10 no-cost or low-cost resources to help get you on the fast track.
Business plan help. Although business plans are critical for success, they can be overwhelming to write. These Websites provide free templates, or step-by-step guides, to get you going: www.score.org/template_gallery.html, www.myownbusiness.org/plans and www.moneyhunt.com.

Chambers of Commerce. For help identifying funding sources or local entrepreneurial services, start with your local chamber, advises Steven Little, author of The 7 Irrefutable Rules of Small Business Growth (John Wiley & Sons; $18.95). "Even if they don't have a program, they know what's out there," Little says. Call 202-659-6000 or visit www.uschamber.com to find your city's chamber of commerce office.

Growth financing. If you have contracts but no cash, consider selling your receivables to a factoring firm in exchange for a percent of the proceeds. You'll find a long list of factoring firms at www.business.com, though asking your local banker for a recommendation is another option. But if you're having difficulty finding the money to buy needed equipment, look into leasing, rather than buying outright, by asking your vendor about payment options.

Interns. Sometimes all you need is a little help, which college interns are ready to provide, especially if they will learn a new skill. Many will work for college credit while others require a small paycheck. Call the career office at colleges in your area to begin tracking down low-cost helpers or check out www.utexas.edu/world/univ/state for a state-by-state list of universities.

Minority Business Development Centers (MBDCs). More than 50 MBDCs nationwide provide free and low-cost help with financing, marketing, and contracting issues for African American business owners. Find the center nearest you by visiting www.mbda.gov or by calling 888-324-1551.

Networking groups. If you feel like you need to get more involved with the local small business community, consider joining a networking organization such as BNI or Le Tip, which are groups established for the sole purpose of generating more business for members. There is a cost to join, which varies by group. Find a local BNI group at www.bni.com or by calling 800-825-8286, or a Le Tip club at www.letip.com or 800-255-3847.

Patent protection. The U.S. Patent and Trademark Website is an excellent starting point for inventors or anyone with a design they want to protect. Check out their database of patents at www.uspto.gov or call 800-786-9199 for technical support. The Inventor Resources section of the site is especially helpful.

Procurement Technical Assistance Centers (PTACs). Your first stop in learning more about doing business with the U.S. government should be your nearest PTAC (pronounced PEE-tak). Enroll in free training or set up a one-on-one appointment with a counselor to track down contracts you could bid on. Call 409-886-0125 to find your closest center, or check out www.aptac-us.org.

Service Corps of Retired Executives (SCORE). Though available to help both startups and existing companies, SCORE's strength is its cadre of industry experts, who volunteer to help small businesses tackle growth issues. Find the office closest to you by calling 800-634-0245 or visiting www.score.org.

Startup financing. "Every major bank in the country has someone whose job it is to try and get money into the minority community," asserts Little, who strongly encourages African American entrepreneurs to start their money search at a local bank.

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