Seth Godin says that we should target the minimal viable market. That’s the smallest group of people to support a profitable business. When your business isn’t restricted by physical borders, you can really niche down. Provided your audience has good internet access, you can drill into niche after niche. An English language podcast that specialises in the Mexican football league will have a viable audience. So will accounting services specialising in pop up businesses.
If you have a fixed premises and a model that requires customers come to you, you can’t go quite as niche. That’s particularly true if you don’t live in a big city. You still need to sell to the smallest viable audience, but if you’re offering a product or service that is and can only be sold locally, you can’t delve into the well.
A cafe that solely caters for vegans may be viable in London, but perhaps not in a town with a population of 50,000.
If you run a business like a coffee shop, how do you create something that’s for someone, not for everyone, whilst maintaining it’s viability as a profitable business? How do you create something that’s not for the crowd, but for enough people to turn a profit?
You still need to create a product that’s perfect for one group of people, the best option in town for that group of people, but the size of that group needs to support your business.
If you’re an accountant selling remote services, you can sell to small business owners that run pop-up businesses because you can target every pop-up business owner in the UK.
How do you know if it’s too niche?
Too niche means, not enough people in the market to support your business. How do you decide if a market is viable? We need to understand what viable is. Viability is different for each person and business. How much profit do you need? That’s essentially the question we’re asking with viability. If you’re not interested in making a profit, the viable market is one which covers your costs. Much smaller than the market that needs to support a business earning £500,000 per year in profit.
If you have a set business model that you’re considering, or currently involved with, you already have an idea of costs. Add on top of that the minimum profit you want to make each year and you have your final figure.
If you’re thinking of setting up an architecture practice in Leeds, you may come to the figure of £300,000 per year. To start, there are two of you, costs of £150,000 per year, and you both want to earn £75,000 each p/a. Now you know the level of income your market needs to support.
From viable to audience
Once you have the viable market size in revenue, you can start to play around with niche ideas. For our architects, they need £300,000. That could come in the form of 3 nr £100,000 projects per year, or 10 nr £30,000 projects per year. A lot depends on who they are and what they do. A customer paying for a £30,000 architect is very different from one paying for a £100,000 architect, as is the type of project you’re looking at.
The architect knows her market. She can decide whether she specialises in certain types of building (schools, high end residential, extensions, etc.). What’s important is you pick one. One that can support your commercial viability and is small enough for you to offer remarkable service over your competition.
All of this can be based on previous experience and market knowledge or fresh market research, preferably both. Do your research first before deciding on the audience. It’s better to spend a month or so getting this right at the start than rushing the decision and then realising a year on it’s the wrong market for you.
Should you tie your business down?
The viability equation is no different whether you serve customers from a fixed location or whether you can serve online to international customers. But, what changes is the audience available to you.
A translator can specialise in technical literature for the pharmaceutical sector because they can translate remotely for any pharmaceutical business around the world. A hair dresser on the other hand cannot cut hair remotely. So, how far can you niche?
Firstly, just because your service is tangible, doesn’t mean you have to serve it from one fixed location. A hair salon is stationary, but there is no reason why a hairdresser needs to be. If your salon is fixed to a high street, then you have two options. Either create a service so remarkable that people will travel to your salon, or you go to them. Why not create a pop up salon? Why not go to offices and hotels? If you specialise in hair up, and we assume that you’re great at it, people will either come to you or you go to them.
Same goes for the vegan cafe. The surrounding area doesn’t support a vegan cafe in a fixed location, but you can still service that audience as well as others via a pop up business. You could find a business to share a location with you. You have it half the week, and perhaps on weekends you travel to different towns with your food.
What if you really can’t move your business?
If you’re a plumber by trade then you really are fixed to one location. But for you, that location is big enough. A town of 50,000 people is big enough for you to find the minimal viable market. There are thousands of homes in your town and every one will require a plumber at some point, some more than others.
You don’t want to be one of dozens of plumbers offering the same service. Pick the audience and offer the best service for them, so good that they wouldn’t even consider the other average Joes. Could be by demographic, age or gender perhaps. Could be by occupation, or accommodation type.
People over the age of 60 think differently and value different things compared to those under the age of 30. Same goes for people living in rental accommodation, or shared accommodation. Decide on the audience you seek to serve, and design your business around that audience.
There’s a smallest viable audience for every business, fixed location or otherwise.