Finding the right niche for a new business venture ensures that you will be marketing your goods and services to the right people. Plus, understanding the unique needs and pain points of your business idea will put you in a unique position for offering value and achieving growth.
During the process of launching a startup, finding the right niche is a crucial step. Read on to learn more about the methods you can use to pinpoint what your ideal customer looks like.
Start With a Thorough Assessment of Your Interests, Skills, and Strengths
This assessment can reveal an affinity with a new niche. It’s something you can draw on to differentiate yourself. For instance, relating to the needs and pain points of your niche can put you in a unique position to develop products that address these needs.
You can also draw on these similarities to develop branding and marketing campaigns your target audience will find relatable.
Conducting this initial assessment can also help you uncover causes you care about. Building an entrepreneurship around these interests can result in an organization with strong core values. It’s something that can make a difference with 71% of consumers saying they prefer businesses that align with their values.
The goal of this initial assessment is also to take a realistic look at what you can offer to your target audience. Are you able to deliver the high-quality these people expect at a price point that makes sense for their budget? Do you have the skills needed to develop relevant products?
You can use this assessment as a basis for building a catalog of the goods or services you will offer based on your skills, experience, or budget. You’ll also be able to highlight the areas where you might need help. There are some solutions to consider once you know what your weaknesses are:
- You can look for a partner with complementary skills.
- You can hire some employees to help with some tasks.
- Outsourcing is an increasingly popular solution, even for small businesses.
- You’ll also need to find some suppliers who can provide products you can resell if you’re launching an E-Commerce business.
The SWOT model is a great framework for conducting a thorough assessment of your strengths, weaknesses, opportunities, and threats. You can also conduct a personal assessment of your skills by listing your education, your work experience, and your hard and soft skills.
Performance reviews from previous jobs can help you identify your strengths and weaknesses. You can also ask friends and coworkers to list your top skills. Go further by taking a personality test like the Myers-Briggs inventory to get to know yourself better and reflect on your values.
Focus on Market Research and Sustainable Trends
Now that you have a better idea of what you can accomplish with your strengths and skills, it’s time to learn more about potential new market segments for your startup.
There are different tools you can use:
- Researching the current size of your market can help you identify opportunities for future growth.
- Look for growth projections for your industry. The fastest-growing markets include travel, online casinos, transportation, and manufacturing. These projections can indicate future opportunities as well as trends regarding the competition.
- Research the risks that are unique to your industry. Experts are citing cybercrime and natural disasters as the main risks businesses are currently facing, but there are additional threats that might be unique to your market.
- Who are your top competitors? How many market shares do they have? Are there any niches where no one is meeting an existing demand?
- Look for data that reflects how quickly new businesses become profitable for your niche, what the average ROI is, and how quickly you can expect to see your business grow.
- Learn more about opportunities that might arise in the future. What happens to startups in your niche? For instance, industries like healthcare, technology, and retail have high rates of mergers and acquisitions.
Sustainable Growth Trends
Many industries are seeing their profit margin shrink. Inflation rates that exceed 8% are causing costs to increase. Businesses are also dealing with supply chain challenges and labor issues. For some markets, oversaturation is an additional challenge.
When conducting market research, you should find out more about the average level of debt for your industry and the kind of sustainable growth rate you can expect without continuously borrowing more funds.
It’s also important to assess how much you need to borrow to launch your business venture so you can get a better idea of how debt will impact your finances during the early stages of your successful startup.
Identify Your Niche Competition
Chances are you won’t be the only business that targets a specific niche. You need to find out more about other organizations with a similar focus by identifying your top competitors. The more you learn about these companies, the easier it will be to find a way to differentiate yourself.
Your goal is to put together a list of the main players in your market and to get an idea of how often new businesses enter this space.
Once you know more about your top competitors, you can identify strategies you can use to differentiate your startup:
- Pricing can be a differentiator if you’re able to offer the same quality at a lower price.
- Superior quality or a unique product offering can also help you stand out. Look for potential needs that competitors aren’t meeting with their current product offering.
- Many businesses are cutting costs, which results in an overall 20% drop in customer experience quality. You can stand out by offering an exceptional experience to your customers.
- For brick-and-mortar businesses, a location that is more convenient to access or more noticeable can help you stand out.
- A growing number of consumers are becoming aware of environmental and societal issues. Adopting core values that reflect these concerns and taking concrete steps to support causes you care about can be a differentiator.
You should focus on finding gaps when researching your competitors. For instance, large companies and franchises often have the most market shares but these businesses often cast a wide net without addressing the more specific needs of smaller niches.
You can differentiate yourself by offering an experience that is more convenient for a specific group of consumers, developing a branding message that is more relatable, or even echoing the values of your audience in your mission.
Identify Your Target Group
Your next step should be to refine the characteristics of the target audience you will sell goods or services to with your startup. The more you know about these consumers, the more you can personalize the products and experiences you offer.
You can use a framework based on a series of simple questions to get started.
Who Is Your Typical Customer?
You can define your typical customer in terms of demographic characteristics. You can look at data points that reflect their age, sex, income level, or marital status. You can also focus on the roles they play, whether they’re a parent shopping in need of a product for their child, a homeowner who needs a service to maintain their property, or a business executive shopping for a B2B product.
You can also conduct research with qualitative data. Demographics usually paint an incomplete picture of who your customers are. For instance, your typical customers might find your brand interesting because it appeals to their strong sense of individuality or their environmental values.
What Do They Need?
Some categories of goods and services appeal to a wide range of customers with few characteristics in common. What brings lots of people together is a shared need.
Sharing this pain point can be the common characteristic that brings your customer base together. If you find that your niche is diverse, it can be beneficial to create buyer personas to better understand the different profiles that exist within this group.
What Do They Want to Accomplish?
Understanding the goals of a customer is important. Two people can shop for the same product with a very different outcome in mind.
Let’s take the example of two customers who are shopping for a new pair of shoes. Even though they’re purchasing the same type of product, they can have very different expectations and outcomes in mind.
- Customer A is value-oriented. This person is shopping on a budget and will look for discounts and special offers. A convenient online shopping experience and fast delivery times will also contribute to meeting their expectations.
- Customer B is more fashion-oriented. This customer will expect a more immersive and fun shopping experience. They’ll want to discover new products, learn about the latest fashion trends, and even get personalized recommendations based on their sense of style.
Meeting the expectations of both customers is possible, but as a startup, you might need to prioritize one profile over another until you have more resources available. Plus, you can differentiate yourself by catering to the unique needs of Customer A or Customer B and make this person feel valued while a larger business will attempt to appeal to both profiles.
How Will the Customer Achieve His Goal?
Asking ‘how’ is especially important in the context of digital transformation. As a growing number of businesses sell products online or rely on digital channels to generate leads, it’s important to understand how your typical customer is researching solutions for the pain points they experience. You can then adapt to their preferences.
You have to identify preferred channels for marketing communications, reaching out to customer service, or discovering new products and services.
Turning to the internet to research a solution to a pain point is a common method to discover new goods and services, but some consumers prefer asking friends or relatives for recommendations. Others will prioritize online reviews from other shoppers or look for recommendations from their favorite influencers.
Researching and understanding these behaviors is crucial for tailoring your approach to your niche, especially since the budget of your new startup might limit the number of channels where you can develop a strong presence.
Test Your Niche With A/B Testing and Other Strategies
Testing gives you access to concrete data for your startup project. You can use your findings to put together a business plan with realistic projections for sales and growth in your market niche.
Testing helps you refine several aspects of your business model, from pricing to marketing strategies. You can also identify your niche with more precision.
Here are a few examples of A/B testing strategies:
- You can use A/B testing to compare two demographic groups and see which one is the most interested in your products or services to refine your target audience.
- A/B testing can reveal which product or service package is the most appealing to your target audience.
- Before launching a new product, determine what kind of promotion or special offer a group of customers prefers with A/B testing.
- You can find the right pricing point for a new product by running an A/B test on two similar groups of customers and measuring purchase intents for each group.
- A/B testing is a common practice in marketing. You can use this method to compare landing pages or to see how different ads or email headlines perform.
User and Usability testing
Does your product meet the needs of your target audience? User and usability testing can help you answer this important question.
With user testing, you can have a person who is representative of your target audience interact with a product or service. As the user gives you feedback on their experience, you’ll learn more about whether or not the product met their expectations and what you could have done better.
Usability testing focuses on user experience. You can conduct a usability test by having customers perform a specific task with your product or interact with your website or app, for instance, to complete a purchase.
In-person testing for user and usability tests allows you to observe customers as they interact with your products or website, but you can also involve a wider range of potential customers by using phone or video interviews.
Surveys and Focus groups
Online surveys can be a valuable tool to measure purchase intentions and potential market shares. You can also use surveys to learn more about the shopping habits of your target audience or get a better idea of their expectations.
Marketers also rely on focus groups to learn more about niches. A focus group allows you to engage potential customers by asking open-ended questions. The purpose of a focus group is to have a discussion, get some feedback, and learn more about the pain points and priorities of your audience.
The Risks of Studying Short-Term Trends
The testing and market research discussed above are valuable tools for your startup, but you should know that relying on data that reflects short-term trends is a risk.
There are strategies you can use to mitigate this risk. You can start by expanding the scope of your market research efforts. Look for historical data that reflects industry trends for the past decade. Compare historical data to current trends to assess whether these trends are representative of the industry or unusual.
You should also identify factors that might be affecting demand for your target audience. The pandemic and its aftermath have changed purchase habits and created new needs in some markets. You can use a mix of industry studies, online surveys, and focus groups to better understand how these short-term trends are shaping the buying habits of your niche.
You can also mitigate risks by having a backup strategy in place. If your startup doesn’t meet its goals in terms of sales and growth, implement a strategy that will help you meet these goals. You can, for instance, adjust your pricing or launch promotional events. Identifying these strategies in advance will give you an advantage.
Identifying your niche is a crucial step when launching a startup. Finding the right niche means you can align your product offerings, your marketing efforts, and your entire business model to meet the needs of your target audience.
Plus, having a clear business plan and a thorough understanding of who your customers are and what they expect can go a long way in onboarding investors for your project.