Niche strategy and core competence explained

I go into a local pub in Bladon and I meet a taxi driver. I ask him where his marketplace is. “Don’t be stupid, I can drive anywhere!”, he says. “I can serve the whole of the UK.”

• That’s a huge marketplace, containing roughly 65 million people.
• I ask him what his marketing budget is. “About £2,000 per year.”
• That’s £0.00003076923 to spend on each prospect. Pretty tight!

After a bite to eat, I leave and go to another pub, where I meet another taxi driver. To compare, I ask him what his marketplace is. “Bladon!” he answers. “I’m the specialist Bladon taxi driver.”

• His marketplace contains around 500 people.
• With a £2,000 budget, he can afford to spend £4 on each prospect in the area.
• He spends this on local leaflets, which highlight that he can be at your door within five minutes of a booking.

Which of these taxi drivers will be successful?

It’s obvious when I put it like that, isn’t it?

But this isn’t always apparent to entrepreneurs who love to grab every opportunity with both hands!

Some think they need to go for success in a massive market. They think they only need 0.1% of a massive market.

This may be true, but in my experience it’s much better to go for 30% of a smaller marketplace.

This approach is both more powerful in marketing sense and more economic. You can spend more per person, and make the message more targeted.

The appeal is far more personalised and relevant than with Mr. Bloggs’s nationwide taxis. Operationally, it is also more efficient. Clients are nearby.

If we look at the biggest companies in the world, they succeed through focus on a very specific niche.

The ‘geeks’ at Google could have built software to do anything, but they built their global reputation on the very narrow target of being the world’s best search engine.

The same goes for Facebook; lots of smart technologists that could have built anything. But they didn’t build a CRM system, an accounting system or even a search engine. No, they pivoted slightly from their original idea and then grew as a social network.

This doesn’t mean you need to say no to expansion, as long as it sits within a strategy.

Having a narrow focus doesn’t actually prevent you being flexible and taking opportunities are they arise. I explain this by using my “dartboard model.”

You could have multiple dart boards with multiple bull’s eyes. This works because the client for business A won’t see business B. These might even be separate brands under the same umbrella, leveraging the marketing and operational power of a bigger entity.

For example, a company might make high-quality windows for historic listed buildings. Every window is slightly different and needs advanced design to work. They may also develop a second stream of business to make custom windows for renovation builds. Another premium sector.

They cannot though (or should not) take mass orders from housing developers for 10,000 windows at £50 each. They simply aren’t geared up to make money from that seemingly-attractive order.

That needs a different type of operation with a very different structure and a very different culture.

I would consider that as missing the dart board. The product portfolio must be developed with core competencies in mind.