Are Micro-Niche Businesses the Future of Commerce?

Maybe I’ve just been reading far too much into the world of startups and small business recently but there seems to be a trend towards developing niche businesses that are profitable due to their small size and low overheads. It’s a good model as it drives their founders to make sure their core business model is solid as typically they aren’t able to diversify their offerings due to their relative size, although it is possible to create multiple niche businesses with the right planning. The vast majority of them appear to be lifestyle businesses created by their owners to escape the drudgery of their corporate lives and it’s really only become possible in the last decade or so thanks in part to the information conduit that is the Internet.

I’m not the only one noticing this trend either. US census data indicates that the past couple years have seen a phenomenal amount of new businesses pop up each and every year:

If you took the time to sit down and sift through the US Census Bureau data, you’d see that over the past few years, entrepreneurs are starting new businesses at an unprecedented rate.  Consistently, the number of existing businesses at the end of the year has increased by between 500,000 and 1million.

That means that before subtracting out the number of startups that fail, the gross number of new businesses started is actually much higher than 1 million per year.  And that’s in the U.S. alone.

Why are entrepreneurs starting new businesses in record numbers?  The first chapter of my new book, Conquer the Chaos, makes the case we’re in an “Entrepreneurial Revolution” and it’s happening due to five big reasons.

The global financial crisis was a wake up call for many people and it showed that even the largest corporate entities weren’t immune to economy. As such people have become increasingly disillusioned with the traditional sense of being employed in a large company for the majority of their life and have begun to seek alternatives. Traditionally however there really weren’t many alternatives as the capital costs to starting up a business were out of reach of the everyman. Today however you can drop in an ecommerce site, set up a paypal account and find a drop shipper with your desired product and have your entire business ready to take orders in less than a week and for orders of magnitude less than what it used to cost. If you can tolerate the risk and are dedicated to achieving your goal there’s really nothing stopping you from trying and as many have proven it really does work.

This got me thinking, with so many small companies sprouting up that are targeting a specific niche how long will it be before all niches are covered? Realistically I know there are certain industries where a small company can’t really make it, usually in capital intensive markets (say high performance computing clusters). But there are an almost endless supply of other markets that can be directly targeted by small companies offering products and services specifically tailored for them. For us consumers it would mean that we (hopefully) get a much better product/service due to it being targeted directly at our needs rather than having to shoe horn in something that fits a wider audience.

The reality is though that when a niche company provides a product or service effectively it will begin to detract customers away from the current incumbent suppliers. Initially this can be ignored as larger companies can absorb such losses without it drastically affecting its business. Depending on how successful the new niche business is however the larger corporation will often look to acquiring it which most good businesses find hard to pass up. Usually this ends up with the business being melded into the larger corporate entity although in some cases you still get them operating independently with all the profits heading upstream. This is the better (for the consumer) of the two options but it is hardly the norm, as it does nothing to strengthen the parent’s brand power.

In the end it seems that whilst it’s infinitely easier to lash out on your own inevitably traditional business models will still stick around for a long time to come. For us as consumers it means that we will always be spoilt for choice when it comes to find the right product or service for your needs and should you come up empty handed you’ll be staring down the barrel of a new market. Whether you take advantage of that opportunity is completely up to you but as the trend is showing with over 1 million business being started up each year in the US alone it’s more than likely that someone else will do it if you don’t.

And now excuse me while I whip myself back into developing shape before some smart ass in a garage codes up my ideas 😉

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