Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run, grow and exit your small business.

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Related Podcast Episodes:

Episode 349: John Warrillow – Built to Sell

Episode 337: Dr. James Richardson – Ramping Your Consumer Goods Brand

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Transcript:

The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

Henry Lopez (00:15):

This is Henry Lopez and welcome to episode 350 of the How A Business Podcast. On this episode, I’m going to focus on the benefits of niching down the focus of your business to help you grow. In other words, narrowing your focus and offering so that you can better leverage your limited resources to help you grow your business fat, particularly in the early phases of your startup. If you want to receive more information about the how a business, including links to the show notes page, visit the how a business.com. So I wanted to focus on this topic of niching down because it’s a common mistake that I see with a lot of business owners is wanting to launch or in those early years wanting to grow immediately to build the business that you might be envisioning operating 10 years from now or even five years from now.

Henry Lopez (01:04):

Whether you are in the planning phase of the launch of your business or you’ve been in business for six months, 12 months, or even a couple of years, this approach of niching down and concentrating your efforts may be what helps you survive and even thrive in those critical early years of your business. Let’s look at some statistics which are very interesting. According to the US Bureau of Labor Statistics, only approximately about 20% of new businesses actually fail during the first two years of being open. And then it’s about 45% that failed during the first five years, and then about 65 that failed during the first 10 years, and only about 25% of businesses make it to 15 years or more. These statistics, by the way, they haven’t changed much over time and have been fairly consistent since about the 1990s. So though the odds are better than commonly held belief, there are still, the reality is there are still a lot of businesses that are going to close down every year in the United States, and you obviously don’t want to be one of those.

Henry Lopez (02:04):

But here’s what’s a different twist on those statistics that what I have observed is that what gets under reported and what doesn’t necessarily show up in these stats is that lots and lots of small business owners struggle at just above profitability, never are able to build a stable business that they can operate without them. They’re working 24 7, continuing to maybe put money into it, and yeah, they don’t fail per se. They don’t have to shut down, but they continue to struggle. They seem to take a step forward and then two steps back, and they never can quite get over that hump of having to be in the business full time just to keep it operating. So that’s what doesn’t end up in the statistics, and that’s where I don’t want you to end up. So when you choose to niche down, you’ll find that you’ll have more time to focus and excel at what you and your business do best by focusing on a particular area of your business.

Henry Lopez (02:57):

You’ll have more time to perform in-depth research on your target market and be able to communicate with them more effectively, be able to market to them more effectively. Oh, and by the way, is it niche or is it niche? I’ve been saying niche for quite some time, but there’s this debate about how you’re supposed to pronounce niche or niche, and there are two common pronunciation variance, both of which by the way, are currently considered correct. So there’s niche and there’s niche. Google, when I search on Google, it says it should be pronounced niche, which of course it lends itself to the French origin of the word, but if you go to the Merriam Webster online site, it says the pronunciation is niche. So you decide however you want to pronounce it, just do it. So how do I do it? How do I begin to niche down?

Henry Lopez (03:43):

And let’s talk a little bit more about what I mean by that. So what I always recommend you start to look at and analyze is where are most of your revenues coming from? But more importantly, what products or services are most profitable and easiest to deliver with high quality? In other words, with the least amount of complications, the shortest amount of time you get paid faster on them, maybe you get paid upfront. Ideally, what are those services or products that you offer that generate the most profit and are the easiest to deliver? And then also I want you to think about beyond that, how can you narrow not just your product or service that you offer, but how do you narrow your geographic focus where you offer these products or services for sale? This is particularly important when it comes to services. When you’re delivering a service, let’s say a home service like home cleaning or lawn care where you’re traveling to the customer, be it a consumer or a business to deliver that service, thinking about how you could narrow yourself geographically, stop pretending to be bigger than you are.

Henry Lopez (04:50):

There’s this whole trend it seems like on our websites, we want to use we instead of I, and I get it, and I understand why that might be important in some cases, but the reality is, first of all, nobody’s buying that. They know it’s just you or you and a few employees, and you know what? That’s okay because what I would suggest to you instead, this doesn’t apply to all businesses, but I want you to think about this, that instead you focus on a smaller community, ideally locally, geographically, to you, if that makes sense, where you can get traction with your brand, where you can begin to get referred quickly. If you’re selling online, think about how you can nonetheless get hyper-focused on generating leads or sales locally. The truth is no one’s going to be able to find you online initially anyway, right? It’s a needle in a haystack.

Henry Lopez (05:36):

That’s why I argue that sometimes a business card can still be much more effective than a beautiful website you paid five or $10,000 for and a lot cheaper. Lemme tell you about a story. I recently had a conversation with a great young entrepreneur, business owner. He’s got a business where he’s offering both home remodeling and handyman services, and he’s putting in a tremendous amount of effort, really dedicated, very inspiring story, but his challenge is he’s having a hard time growing and part of it is I believe that he’s trying to juggle too many things. He’s trying to serve two very different types of services with home remodeling. Those are longer projects that tie up crews that he doesn’t even get paid ahead of time. So there’s a cashflow challenge, whole different thing. Now, they’re very profitable when he gets these projects, but there’s an opportunity cost here, and I’ll come back to that instead.

Henry Lopez (06:28):

What I wanted him to think about, and he’s going to is does he focus at least in the short term on just his handyman services because that’s a service that he can deliver easier that he collects payment for typically upfront, so there’s no cashflow challenges that he can get in and out. Obviously, most of these jobs that fall into the handyman category are one day or a couple of hours so he can serve more customers. It’s a better focus for him I think initially until he gets that established. It’s an area also that once he gets that operation going and he gets some traction, he can hire other people to deliver it effectively. That’s an example of focusing of niching down. Going back to the challenge of geographic is spreading yourself two things geographically is going to kill you. If you’re trying to deliver a service or a product, again, like I mentioned, like lawn care service for example, the time you’re wasting just driving from one end town to the other, there is an opportunity cost there.

Henry Lopez (07:26):

It’s going to be really hard for you to scale with your one crew or just yourself if you’re trying to cover too big of a geographic area. We do that sometimes because in the early days, we’re desperate for business and we’ll go chase whatever comes our way, and I get it. Sometimes we have to do that. But think about saying no and niching down, not just in your offering, but also in your geographic area. In the case of a physical retail location, a brick and mortar store or a restaurant, it’s still about focusing on a well-defined niche. What will you be known for that differentiates you in the community that you serve? If you think about it, there aren’t too many old style department stores left that are doing too well, and you’re certainly going to have a hard time trying to beat Walmart or Amazon at their game.

Henry Lopez (08:14):

So niche down, niching down also makes everything less complicated from your operation to your sales and marketing. Let’s talk about operations. Streamlining your offering, you make it easier to implement systems and delegate work. You’re able to document and train others to do the work to make the product or deliver the service, so you make it less complicated. It’s also what allows you to step back from working into business to working on the business. So think about how you can streamline things. Think about when you’re deciding what product or service to focus on. I talked about what generates the most revenues, what’s most profitable, but also what’s easiest to deliver, what’s easier and most efficient to deliver? What could you begin to hire others to deliver? From a marketing perspective, you’ve got limited dollars. We don’t have endless budgets to throw at marketing and advertisement. You do not have enough money to try to attract every potential buyer.

Henry Lopez (09:11):

You must narrow your focus, which in turn narrows your ideal target customer or avatar, allowing you to laser focus your spending on marketing and advertisement to reach a much smaller group of potential buyers. And furthermore, your messaging will be much tighter and appealing because you’re not trying to be everything to everybody. So let me share another example. Many of you maybe have listened to John Wilker, the founder of the Simplest Biz on this show. He most recently was on episode 3 34 of the Howa Business, and what we chatted about on that episode and what he offers people is to show them how to develop the simplest biz. He developed this business many years ago, and it has perfected it now to a point where he teaches others how to start their own simplest biz, and it’s very niched down, very focused. It’s a shipping products brokerage business, but essentially he’s brokering pallets, cardboard boxes, crates, those kinds of things from one business to another.

Henry Lopez (10:08):

There’s no inventory typically. There’s no receivables, just very clean, simple business to the point where he’s able to teach others how to do it. That’s a great example of a very profitable business that has niched down, has stayed focused in order to grow. I recently had the privilege of interviewing John Warlow on episode 3 49 of the How a Business. John is the author of Built to Sell, and his new book is The Art of Selling Your Business, and I want you to listen to what he had to say about niching down. Is there one or two things that you tell people to think of from the start that puts you on the right path to being this type of business owner where you can thrive, where it can thrive without me?

Speaker 3 (10:49):

Yeah, it’s really to reverse the classic mistake most of us make when we start businesses, and that is that we sell too many things to too few people and the most valuable companies, the ones that can thrive without the owners, give the owners the freedom they aspire for, do exactly the opposite. They sell just a few things to lots of people.

Henry Lopez (11:11):

Great insights there from John Warrillow. That’s an excerpt from episode 3 49 of the How of Business. The context of that conversation was about preparing your business for sale, and it’s important to build your business that way even before you launch or in the early days, even if you have no plans right now of selling your business. Because doing so not only gives it more value if you need to sell your business, but it’s also what allows you to step back from the day to day, from working on the business earlier than having to be stuck working every day in your business, whether you want to or not. So John says you should avoid trying to sell too many things to too few people. When you don’t niche down, you’re trying to offer too many services or products, and too few people are buying them. For us, as small business owners, we don’t have the resources to try to bring that many products and services to market, to have offerings that they might be related but are draining.

Henry Lopez (12:08):

Our resources are keeping us from being able to do one thing well. The most valuable companies, as John said in this excerpt, do exactly the opposite. They sell just a few things to lots of people. A lot of people is relative. Of course. It means that you want to focus on selling more of what you do best to a growing tribe of raving customers or clients. On episode 3 37 of the Howa Business Podcast, I had a conversation with Dr. James Richardson. He is an expert on ramping on helping his clients ramp consumer brands, like let’s say, a product that’s going to be sold on a grocery store shelf. And what he talks about there is that a lot of people make this common mistake of trying to get that product in as many stores as possible as quickly as possible. That seems to be the norm or the conventional wisdom.

Henry Lopez (12:57):

In fact, what he has found after a lot of research and study is that what makes for a successful launch of a product is concentrating on a smaller geographic area, sustaining those sales, really proving that the customer is buying that product on a repeated basis and then investing and growing. So it’s yet another example of how niching down really allows you to grow faster as opposed to trying to be everything to everybody. By the way, this is yet another reason why it’s so important for me to repeat what you’ve heard me say numerous times on this show if you’ve listened to other episodes, and that is that you have to know your numbers, your financials need to be in order to help you make these decisions about what you’re going to niche down to. Here’s what I want you to take away from this episode.

Henry Lopez (13:49):

If you’re getting started with your business or you’re in the early days of growing your business the first six months, a year or two years, I recommend that you consider niching down, narrow your focus, do and offer fewer things extremely well, develop the systems that allow you to hire others to deliver your service or product consistently, and leverage that focus to grow your business. Then you can expand later when it makes better sense, and when you’re ready, it’s hard to start out as a large corporation when you’re launching with limited resources. Start and stay focused so that you can grow faster. I invite you to go to the how of business.com to find the show notes or archive of episodes, information about my coaching services and lots of free resources to help you start, run, and grow your business. This is Henry Lopez, and thanks for joining me for this episode of The How of Business. We release episodes every Monday morning. You can find us on Apple Podcast, Google Podcast, Spotify, and at our website, the how of business.com. Thanks for listening.