5 Steps to Building a Successful Niche Business (NYT)

5 Steps to Building a Successful Niche Business

A simple service can win big in a small market.

By Scott Gerber | August 03, 2009

URL: http://www.entrepreneur.com/startingabusiness/youngentrepreneurscolumnistscottgerber/article202900.html

From aquatic sporting goods for dogs to Michelle Obama-inspired fashion websites, niche products and services have the potential to generate big bucks if they capture the hearts, minds and wallets of a dedicated consumer base. Unlike conglomerates that target the masses, niche businesses cater to highly defined markets that are often over-looked, underserved or disenfranchised by larger competitors. With an abundance of available outlets, resources and online platforms, identifying and reaching a target audience has never been easier for small business owners. Are you ready to become the big fish in a small pond? Is your passion unique enough to turn a profit? Here are 5 steps to make your niche business a hit.

Create a Simple Service
A simple service is a singular offering that focuses on the needs of a narrowly defined customer base. Whether you yearn to be the premier manufacturer of dog lingerie or the industry-leading producer of edible Christmas tree ornaments, make sure you can easily answer these questions: Who needs your service? What’s uniquely useful about that service? What makes your service better than your competition? Fine-tune your brand name, website, and marketing tactics to focus solely on selling your unique specialization and expertise. Remember: Focus. Focus. Focus.

Real World Example: In 2004, my partners and I launched a typical "do everything" video production company. After years of under-performing, I transformed the company into a single product specialist. While the vast majority of video production companies still tout their large service rosters, Sizzle it! has carved out a niche as the only company that specializes in sizzle reels--stylized 3-to-5 minute product videos commonly used by PR and marketing professionals. Result; Sizzle It! has emerged as a go-to company for sizzle reels and benefits from top keyword visibility on all major search engines.

Craft Your Niche Marketplace
The key to your simple service’s success is to capitalize on a niche marketplace that you feel is being underserved. A niche marketplace is a small, specialized market segment within a larger, viable commercial industry. When identifying the niche marketplace you wish to enter, consider the following questions: Who lives in your marketplace? Why have they been underserved? How can you better serve them? How can you unite them? In short, why is your simple service the solution to their problem? Compile the data you collect to produce a detailed profile of your target customer. Using the data from your customer profile, join or create online groups, feeds and networks that are relevant to your simple service. Connect with your niche marketplace’s key decision makers, enthusiasts, and influencers using social networks such as Facebook, Ning, Twitter and MeetUp.

Real World Example: There are thousands of T-shirt stores both online and offline, but few have truly established or engaged a niche marketplace. Threadless is a user-generated T-Shirt and apparel website that determines its product line based on the results of online design competitions. Winning artists receive recognition, cash prizes and their designs sold on Threadless gear. The company has united a niche marketplace of trendsetting hipsters, artists and design aficionados seeking wearable art. Result: the company sells over 1 million shirts per year.

Become the Niche’s Leading Authority
As the creator of your simple service, you offer your niche marketplace valuable insight and advice. However, simply proclaiming you are an expert will get you nowhere. Shamelessly self-promoting your service will also lead to a dead end. Authenticity builds credibility. Relate to your constituents. Tell the story behind the founding of your simple service. What problems did you encounter? How did you solve them? Once you’ve perfected your message, disseminate relevant content through "expert real estate" such as blogs, forums, press releases, speaking engagements, newsletters, web videos and podcasts. Remember, no one knows your marketplace better than you.

Real World Example: Joy Berry is a best-selling author of children's books and, according to Scholastic, the inventor of self-help books for kids. For over 30 years, Joy’s advice and media products have focused on helping parents to raise responsible kids by teaching them the living skills their children need to know at various developmental stages. Result: Joy Berry has connected to a worldwide audience and sold an astonishing 85 million books.

Be Specific, Distinctive and Relevant
Seize every opportunity to point out why your service is a better fit for your niche marketplace than competitive offerings. Take a good look at all of the components that make up your simple service, from concept to manufacturing and distribution. What makes you stand out? What do you offer that competitors don’t? Why are you more relevant to your niche marketplace? Use the answers to these questions as ammunition against the competition. While a competitor may tout their “multi-service one-stop-shop”, your niche marketplace prefers a specialist. Your competitor may be a low-cost leader, but your niche marketplace appreciates high quality craftsmanship.

Real World Example: While major corporations have dominated the print yearbook industry for decades, Yearbook Innovation, a school memory product provider in Staten Island, N.Y., believed cash-strapped schools were ready for a change. Yearbook Innovation differentiated its yearbook products by offering more hands-on customer service and production services than competitors, eliminating penalties and late fees, and slashing 20 percent--off a school’s previous yearbook contract--all without a loss in product quality. Result: the company has begun to take away market share from entrenched competitors in their local area.

Copy, Paste, and Repeat
Keep hammering your message home. Expand on your successes. Find innovative ways to grow your niche marketplace. Locate new avenues, channels and “expert real estate” to showcase your simple service, its competitive advantages and your expertise. You know what’s worked; now increase your exposure. Copy, paste, and repeat.

Real World Example: Google began as a simple service that could only dream of being in the same league as companies such as Yahoo and Microsoft. Today, Google has become the undisputed online advertising titan by consistently developing, acquiring and partnering with high trafficked online destinations that expand its AdWords program. Result: Google generates billions of dollars per year in revenue.

Are you a young entrepreneur with a unique venture? Email us about it at youngentrepreneurcolumn@gmail.com

Scott D. Gerber is Entrepreneur.com's Young Entrepreneur columnist and CEO of Gerber Entertainment, a brand development and venture management company that specializes in the entertainment, Internet, media and marketing industries. For information on speaking engagements, media appearances or Gerber Entertainment's portfolio of businesses visit www.GerberEntertainment.com.

A Small-Business Guide to Intellectual Property (NYT)

A Small-Business Guide to Intellectual Property

By DARREN DAHL

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Quick Tips:

From Mark Blaxill and Ralph Eckhardt, founders of 3LP Advisors, an intellectual property consulting company in Boston, and co-authors of a guide to I.P., "The Invisible Edge" (Portfolio, 2009).

• Securing your intellectual property involves more than patents. Trademarks, trade dress and even Web site addresses are all part of I.P.

• Think strategically when it comes to international rights. Start with countries where you might sell.

• Don't sit on unused I.P. Use it to open additional revenue streams or bring about new partnerships through licensing.

Suggested Reading:

• The U.S. Patent and Trademark Office , for more information about I.P. for small business.

• The World Intellectual Property Organization , for more about international I.P. rights.

• An easy-to-use online global directory for I.P. resources.

• Use Google's patent site to perform your patent search. You can also search here and here.

• Patently-O by Dennis Crouch is one of the most popular blogs on the subject of I.P. law.

The two most precious resources for any small-business owner are time and money. That’s why when the subject of intellectual property comes up, many owners run in the other direction. They see images of expensive lawyers and use that as an excuse to ignore the topic, reasoning that it is a problem for big companies to worry about.

The trouble is, with the rise of competition through the Internet and on the global market, understanding intellectual property is more critical than ever for small-business owners. Let’s explore some of the common fallacies:

1. For small-business owners, it’s not worth the time or effort to secure intellectual property rights.

Daniel Lubetzky, chief executive of New York City-based Kind Snacks, had high hopes when he and his company attended the Natural Products Expo West in Anaheim, Calif., in March. And who could blame him, since his Kind Plus bars had been named the best new product at the Natural Products Expo East last October?

But it didn’t take long before Mr. Lubetzky knew something had gone wrong: He kept hearing how one of his competitors had copied the packaging, look and feel of his bars.

Fortunately for Mr. Lubetzky, he had secured crucial components of intellectual property like trademarks, trade dress (the look and feel of a product) and Web addresses after founding his company. Unlike a patent, which can cost up to $25,000 to secure, trademarks and Web addresses can be obtained relatively cheaply and without the aid of a lawyer.

With the legal documentation to back up his intellectual property rights, Mr. Lubetzky sent the offending company a cease-and-desist letter, which achieved the desired result. “Too many entrepreneurs forget there is more to I.P. than just patents,” said Mr. Lubetzky, who happens to be a lawyer.

2. Once I get a trademark, my brand is safe.

It may be. But consider what happened to Tracey Deschaine, who runs a restaurant called Dixie Picnic in Ocean City, N.J.

When Ms. Deschaine opened her business in 2006, she secured trademarks on her business name and logo and on the name of her signature item, “upcakes,” which are upside-down frosted cupcakes. The problem, she says, was that even though she had obtained the trademarks, someone monitoring the activity on the United States Patent and Trademark Office’s Web site had spotted her application and secured upcakes.com as the Web address, or U.R.L., before she could.

“I had no idea that even though I have a trademark, someone else could just go register the U.R.L.,” she said. “I wish I had planned ahead and bought the site before I did that.”

3. Having a patent gives me the right to produce something.

This is a very fundamental misunderstanding. Actually, what a patent does is give you the right to prevent someone else from producing what your patent covers. “Having a strong I.P. position helps ensure that other people pay you for your innovation like they would a toll on a road,” Mr. Kocher said.

But even if you do have a patent, there’s no guarantee that someone won’t try to get around it. There’s also no guarantee that you will win if you fight that person. But if you have your I.P. ducks in a row and a commitment to do whatever you can to defend those rights, you do have a fighting chance — even in a fight against a much larger company.

Consider the example of Cryptography Research, a 20-employee technology firm in San Francisco that specializes in data security. Beginning in 2004, the company made the decision to pursue litigation against the credit card giant Visa, which Cryptography asserted was infringing on its patents covering smart cards. To pursue the case against Visa, however, Cryptography’s founder, Paul Kocher, knew he needed a serious war chest in addition to his patent portfolio.

That’s why he decided to sell off another piece of his business, patents covering technology that protects Blu-ray discs from piracy, to Macrovision, which is now known as Rovi, in 2007 for $45 million. “All of a sudden we became a formidable opponent for someone who thought we couldn’t fight,” Mr. Kocher said. In the end, the gamble paid off, as the two companies settled out of court, with Visa’s agreeing to license the technology from Cryptography.

4. If I have a patent or trademark in the United States, I don’t need to worry about the rest of the world.

It depends on your business model. Intellectual property rights, which also include country-specific U.R.L.’s, need to be obtained country by country, some of which protect them better than others. The cost can vary, too.

In Japan, for example, it is notoriously expensive to acquire patents. In addition, the annual fees required to maintain the patents there are often prohibitively expensive for small businesses, said Gary Johnson, chief executive of Blue Spark Technologies, a manufacturer based in West Lake, Ohio, that makes small, flexible batteries used in things like radio frequency identification tags.

“What we have done is to develop a strategy to go after I.P. protection in a limited number of countries that we think we are most likely to sell or manufacture in, like the U.S. and China,” he said. “A lot of the choice comes down to what your business plan tells you.” To decide what your international I.P. strategy should be, consult a lawyer and conduct some cost-benefit analysis to see if expanding your I.P. rights makes sense.

5. People who collect patents but don’t actually make anything are “patent trolls,” parasites who can make money only by filing lawsuits against real businesses.

The term “patent troll” was coined in the wake of the epic lawsuit fought between NTP, a small holding company, and Research in Motion, which makes the hugely popular BlackBerry. The focal point of the dispute was a patent for wireless e-mail delivery held by NTP — something that R.I.M. eventually would pay millions of dollars to license. But what most people remember about the story is the lawsuits and the notion that NTP was somehow in the wrong for trying to enforce its patent, mostly because it didn’t make any products itself.

But consider that many inventors never set out to build a company, only to partner with someone who would bring their products to life. Thomas Edison, for instance, received more than 1,000 patents — many of which he licensed to other companies. “He created what we might consider the first innovation factory,” says Mark Blaxill a co-founder of 3LP Advisors, an intellectual property consulting company based in Boston.

A more recent example is Trident Design, a company founded by an inventor, Chris Hawker, which patented and then licensed the design for the PowerSquid. Like Edison, Mr. Hawker’s company invents products, builds an intellectual-property wall around them and then licenses them to other companies.

The PowerSquid is now manufactured by a division of Phillips Electronics and sold by a spinoff of Trident called Flexity. “Our entire business model is leveraging our I.P.,” Mr. Hawker said.