Should You Start or Own a Niche Business?
Every niche is a bubble – this is how to protect yourself when it pops
How many people do you know selling unofficially-licensed Disney or Marvel birthday cakes from their Facebook account?
Trust me it’s a lot, but they’re not all doing well.
The supply has suffocated the demand.
The metaphorical bubble has popped and the large businesses doing the same thing (in this case, Supermarkets) will likely survive, while the small independents will eventually be financially broken.
Before you continue or launch your business it’s worth finding out what a bubble is and how it can kill your business instantly, without proper planning.
Something all business owners, or aspiring business owners should know
Every industry or niche in business, is a bubble. Or at least is should be considered as one.
The ‘housing’ bubble, as you may already know, kicked off the 2008 financial crisis.
It didn’t crash because of the product, it crashed because so much competition devalued the product to below worthless.
The same happened with the “dot-com” bubble.
First, what is a bubble in economics?
A bubble is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior.
Put simply, something becomes overvalued by incredible demand and the bubble inflates. Let’s use Bitcoin as an example.
The bubble eventually pops and the value of that asset (in this case Bitcoin) crashes.
The same cycle applies to almost every asset.
However, this won’t be focused on the minutiae of economics, this is instead, a thought-provoking lesson to all entrepreneurs.
What is a bubble within a niche business?
Imagine every niche (or industry) is a bubble, at first it’s easy to inflate. It has so much room to grow.
That room to grow is created by a lack of competition.
Eventually others see how easily and effectively you’re making money… and copy you.
Perhaps they do it better?
Now more competitors observe your success. They can’t do it better, but they can do it cheaper.
The bubble grows exponentially and the market share is split between all competitors. Their slice of the pie is thinning by the second.
One day the bubble will pop and everyone’s share will be so thin, that it isn’t sustainable for them to remain in business.
Selling online prolongs this inevitable bursting, because overhead costs are reduced and hobbyists can treat these businesses as supplementary income aka “a side-hustle”.
Is choosing a niche wrong?
This isn’t to say that niche businesses won’t work, they can, but you have to get in early, or with a product that destroys the competition.
Create something they can’t compete with.
Unbeknownst to you, there is a huge market online for selling Playing Cards.
Unfortunately, due to new low MOQ’s (minimum order quantities) set by the manufacturers, every man and his dog can now print decks.
Quality is static and the market has been flooded with sheer accessibility.
I explore other ways to fix this problem in my article ‘The Buyer’s Triangle’:
The Buyer’s Triangle: What to Do With Your Marketing if Your Product Flops
Not everything you promote is a winner — but why?
The supply chain now has no restrictions, a guy from his bedroom in Paris can make the same quality deck of cards as a huge company with unlimited resources… and he did. See, this is actually a true story.
Nico, a friend of mine from Paris just put up a video about closing his company.
His chosen niche is saturated by supply. Tens of thousands of playing card designs, all with good quality and sold for around the same price. He cannot compete successfully.
He, like many of you, needs to find a new niche.
We can learn from Uber’s suffering
After discovering a niche that was under-developed, Uber dominated the personal transportation space after it launched in 2009.
It only took 3 years for a serious competitor (Lyft, 2012) to begin their assault on Uber’s market share. Now Uber’s competition is in the tens. All offering the exact same service, some being cheaper.
Uber’s #1 competitor, Lyft, now owns almost $4billion of what could have been Uber’s business.
It’s no wonder that Uber has needed more than 24 rounds of investor funding to stay alive. Their stock price has dropped from $44 to $30 a share in the last 6 months alone.
Their vision was to collect as much market-share as possible, to kill the smaller competitors businesses before they grew too strong.
They were forced to diversify, to broaden their portfolio— think Uber Eats.
So now you’re asking yourself, if big companies like Uber are at risk too, how do you survive in competitive niches?
The lesson is to go broad.
Broad is the new black
The only way to protect yourself is to put your eggs into multiple baskets. Exist in more than one bubble.
Like investing, you need a portfolio of products that exist across multiple niches. That way, if one fails, or becomes too competitive, you can stay afloat on the buoyancy of your other products.
Take note of the actions of Scott Galloway’s Big 4:
Amazon has diversified itself across books, video, music, production, manufacturing, distribution of third party goods, voice AI… everything it can.
Apple has a slice of personal computing, the music business, the headphone space, the drone market. It’s diversified.
The others have varied portfolios too, through innovation and the aggressive acquisition of some of their competitors.
Their goal is to diversify and broaden the reach of their business within multiple markets. This insures them against collapse.
They grow bigger and bigger each second, sucking up market-share across multiple niches, not just the one that made them successful in the first place.
You need to go broad or go home.
By selecting multiple niches, or a niche with a humongous amount of demand and inferior competition, you will succeed.
Just be on the lookout for competitors that are hot on your tail. Like fresh blood to a hungry shark, money attracts from miles away.
Success will inevitably breed it’s own competition.