It pays to know your niche

Business strategy is a curious blend of economics, marketing, common sense and luck.

Successful companies large and small can usually trace their success to minimizing big mistakes and a healthy dose of “being at the right place at the right time.”

In teaching and learning business strategy, one must try to find lessons that are transferable. You can’t do much with the knowledge that some company was in the right place at the right time, although it’s worth asking if others who were also there didn’t make the right moves.

A business should start with a simple proposition: an informed decision about what it can and wants to be in this space. Who do you think you are? Do you want to be big, fast and high volume? Small, focused and high quality? High touch? Low price?

Having decided where your niche is, you need to determine if there is a viable market for your business.

What does that mean? It means that a sufficient number of customers exist who are willing to pay you a price that will allow you to cover your costs of being … you! And leave you with enough profits to allow you to exist.

Of course, there’s a lot to this proposition.

Customers don’t just fall in your lap. You’ll need to advertise or otherwise communicate who you are, what you offer, and how the difference you make makes you worth your price. And you have to allow that competitors will try to make their version seem better. If competitors do come along that make a newer, better mousetrap, you have to either change or give up.

But new is not always better and not every innovation suits every business. A successful high-end restaurateur in Redlands might consider opening a similar restaurant in Claremont. But she would be misreading her niche if she coveted In-N-Out’s success and opened a string of carry-out burger stands. Indeed, even adding a drive-thru window to her successful Redlands restaurant would likely cost her far more customers than it would gain her. For what signal does a drive-thru window send about your food? Fast? Yes. Special? Not so much. Ambiance? Nope!

This logic works for companies big and small. Apple computer just launched new iPhones and stayed true to what they are: designed well, snazzy, and expensive; Apple does not want to make low-priced “burners.” Being in the burner market would ruin its reputation. Honoring its successful niche has made Apple one of the most valuable companies in the world.

No business strategy lasts forever. Even Apple computer will someday go the way of Polaroid.

But for businesses big and small, success is usually a matter of finding and staying true to a strategy that the market is willing to pay for.

Jay Prag is a finance professor at the Peter F. Drucker and Masatoshi Ito School of Management at Claremont Graduate University. Prag also serves as academic director for the school’s Executive Management Program, and can be heard weekly on “Inland Empire News Hour” on KTIE-AM 590.