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Differentiate Your Business

Why Every Successful Business Owns Its Niche

By Jeffrey Baumgartner

The single most important act of innovation any business performs is differentiating itself from similar businesses. Every truly successful business has started on its road to success by defining a unique niche and owning it. When Google first launched its search engine, it was one of many search engines on the market. But it was different from the others. Thanks to a new algorithm, it actually delivered relevant results. Tesla is but another car manufacturer in a world that, frankly, has too many car manufacturers. But Tesla has carved out a niche as the one and only manufacturer of luxury, battery powered cars. A relatively new company, Tesla is performing far better than most car manufacturers today. AirBnB is but another accommodation service in a world full of such services, but AirBnB created a niche service by enabling people to rent spare rooms and homes to travellers. Other companies are copying AirBnB, but they will be followers. AirBnB owns the niche.

Why Do Businesses Fail to Differentiate?

If the path to success starts with differentiation, why do so many businesses fail to differentiate themselves? The answer is simple: their owners are scared to do so. They mistakenly believe that if they differentiate themselves into a unique niche, they will lose business opportunities from outside that niche. They believe that it is safer to be but another player in a crowded market than to be the only player − or, at least, the undisputed champion − in a well defined market.

For example, let us imagine you are an accountant in a big city and decide you want to set up your own accounting business. Your instinct might be to do all kinds of accounting, that way you have the largest body of potential customers. However, in your city, there are probably a hundred accounting businesses and freelance accountants also looking for the same business you are. As a new business owner, how could you possibly stand out? The answer, my friend, is easy: you cannot. Sure, there are godzillions of potential customers, but turning those potential customers into real ones in a competitive market is like trying to catch fish in the ocean with your bare hands. You might nab one or two, but it won't be easy and the ones you catch will not be the biggest, the healthiest or the most desirable.

On the other hand, you could specialise by finding a unique niche and claiming it as your own. For instance, you might specialise in providing accounting services to on-line businesses selling services internationally. Yes, your market is much smaller, but if you are the only accountant specialising in this niche, you own the niche. Build your reputation around your niche and soon your customers will identify you in terms of the niche. Now, it is like fishing in a small cove with a big net. Sure, there are far fewer fish, but you can catch many more of them with far less effort. Moreover, you can catch big, healthy desirable fish too.

Which would you prefer, lots of potential customers or lots of actual customers?

It gets better still, by focusing on your niche, you build your reputation and expertise in your niche. This enables you to charge higher fees while performing business more efficiently which, as any accountant can tell you, is a path to greater profitability.

Of course, there are challenges. It is possible that your niche will not work out, either because you lack the wherewithal to offer products and services in the niche; or because there are fewer opportunities in the niche than you believe. If so, you will need to rethink your differentiation and build a new niche. I've done this. You can too.

Do Not Lose Your Niche

It can also happen that you lose your niche. Nokia, once conglomerate that had its fingers in many pies, began focusing on producing cutting edge, fashionable mobile telephones in the 1990s. They were a huge success until Apple launched its first iPhone, a more fashionable, more cutting edge telephone than anything Nokia had on offer. Nokia never quite recovered and much of its business has since been bought out by Microsoft.

My feeling is that there is a tremendous missed opportunity here. Rather than try and compete with Apple and the many manufacturers of Android operating system mobile phones, Microsoft and Nokia should have declared a new niche: mobile telephones for business teams. Microsoft's operating system is still on most business PCs and laptops. Microsoft Office is still the de facto standard for business documentation, spreadsheets and presentations. Combine a smartphone with a secure operating system that allows business users to use applications across various devices securely and without sending loads of potentially sensitive data to Google or Apple, and I believe that would be a nifty and profitable niche. Unfortunately, I believe Microsoft and Nokia are chasing Apple's niche. They will not succeed. Apple owns the niche, at least until someone launches a radically new Smartphone concept.

It is also possible to lose a niche because the market disappears. Kodak was the American film manufacturer. That was a big niche, but they gained it by being in the market for a very long time. Kodak also owned the niche of consumer snapshot cameras, a niche they gained by developing and marketing the first such camera, the Brownie, in 1900.

Unfortunately, the market for film and film cameras has all but disappeared and Kodak is a bankrupt shadow of its former self. Here, was another, clearer missed opportunity. The first digital camera was invented in Kodak's research and development unit in 1973 and promptly rejected as a useless invention. It was rejected and that is understandable. Personal computers, the web and mobile phones did not exist in 1973. Moreover, the quality was appalling.

Nevertheless, with the advantage of hindsight, it is clear that Kodak should have invested in developing the digital camera. They could even have looked at their own corporate history for inspiration. The Brownie took poor quality images in comparison to the other cameras of the day. But those cameras were professional grade, big and cumbersome to use, while the Brownie was small, portable and easy to use by anyone.

If Kodak had developed their invention, the company might have become a leader in digital snapshot cameras.

The lesson to bear in mind here is that you cannot simply differentiate yourself once, as Kodak did by becoming a maker of snapshot cameras and film, you need continually to review your niche, be wary of threats and be willing to modify your niche or even change it. You need to watch out for companies that may attempt to steal your niche, as Apple did to Nokia, not because Apple had any problems with Nokia, but because Steve Jobs had a way better idea than anyone in Nokia had (or at least was willing to implement).

Your Niche Is Just a Starting Point

Differentiating your business is about much more than declaring a niche and owning it. It defines your business in all kinds of ways. Your strategic vision needs to align with your niche. Innovation needs to reinforce your ownership of your niche by ensuring that you continue to develop and implement ideas that keep you at the forefront of your niche. Why? Because, as soon as you begin to succeed in your niche, you can be sure other companies will try to take the leadership of your niche. If you become complacent, one of them will surely steal your niche.

Your differentiated niche gives meaning to your work, an identity to your company and direction to your employees. When employees understand your niche, it defines their work and ensures everyone is working towards the same goal.

Recognition

You, as the business, owner, become recognised as the leading thinker in your field. When the press want to know about the future of battery powered vehicles, one of the first people they call on for an opinion is Elon Musk. When I launched one of Thailand's first web development companies (specialising in serving Thai companies trading overseas), I not only found myself in a winning business, but I was regularly called by journalists wanting my opinion on new developments in the Internet, I was interviewed frequently by the press in all media and my company was featured in a prime time IT television show.

Finding Your Niche

Working out how to differentiate your business is not easy and differentiating is even harder. On very rare occasions, opportunity works out for you. Google was not originally a business, but a university project to test a hypothesis about how to get more relevant search results on the web. Microsoft was just another okay software company until IBM designed the first personal computer (PC) and Bill Gates was given the opportunity to propose an operating system; an operating system that Microsoft bought the rights for rather than developed, and differentiated itself as the PC operating system company, a niche that became spectacularly huge.

Exploiting such opportunities requires the vision to see their potential. When Bill Gates made his deal with IBM, the PC was a new concept and most computers were massive beasts with custom designed operating systems. To imagine a future in which there were millions of PCs all using the same Microsoft operating system, allowing easier sharing of software programs and files, took vision and courage.

On other occasions, you need to define your vision. Nokia has been around for about 150 years, originally as a paper mill and later as all kinds of things. Over the years, Nokia has been involved in producing communications and electrical cables, televisions, paper products, tyres and much more. But, in 1993, the company dropped the other businesses, focused on mobile phones and related technologies and owned leadership of that niche. For some years, the coolest mobile phones were Nokia products.

At other times, differentiation is the result of the creativity of the company founder or a new CEO. Tesla founder, Elon Musk, is clearly a creative man who had the idea, at a time when battery powered cars were not taken terribly seriously, to launch a company to manufacture luxury battery-powered cars. Until that time, all modern electric cars were very basic, small cars. His vision required creativity and the wherewithal to make that vision a reality.

It also required a willingness to take a risk. Would buyers of luxury cars be willing to spend a big chunk of money on a battery operated car? If the answer had been 'no', the company would have failed. As it happens, they said yes. Tesla is a super successful company and Mr Musk is probably the most famous engineer in the world today.

Differentiate from Day One

If you are launching a new business, you need to differentiate yourself from the beginning. Perhaps you see an opportunity. Perhaps you simply want to start your own business for whatever reason. Whatever the case, you need to find a way to differentiate your business. If you are launching your business because you have discovered a special opportunity, you probably already have your niche. Otherwise, you will need to get creative and define a unique niche. Of course, if you are selling only locally, you only need to differentiate from local businesses. That's not so challenging. If you are selling nationally or even internationally, then you need to differentiate nationally or internationally. That is challenging.

Likewise, if you have an ongoing business that has failed to differentiate, you need to differentiate your business now if you want to turn your business into a success.

If you are struggling to catch up with the leader in your market under the assumption that your better product will win you the market, you are mistaken. Unless your product redefines the market, as the iPhone redefined mobile telephony, you will always be chasing the leader because you are a follower. If you want to lead, you need to differentiate your business. You need to define your niche, own it and grow it until you have loads of companies following you with the mistaken belief that if they try a little harder and improve their products a little more, they can win the market. As long as you keep innovating, they cannot. They are doomed to be followers until they differentiate from you and your followers and build their own niches.

Get Creative - Be Original

And the way to differentiate, my friend, is to think originally, which is another way to say, you need to be creative. You need to devise a way to define your business that is your unique, original and special niche. Then you need to own the niche. Make it yours. Develop it. Grow it. It is risky. It is scary. It is hard work. If it was not, entrepreneurship would be easy and every ding-a-ling with an idea could grow rich.

Fortunately, you are not a ding-a-ling with an idea. You are a creative individual with an intelligent, curious mind. If anyone can come up with an original way to define a new or existing business, it is you.

--

 

Erps-Kwerps, Belgium
August 2016

 

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Jeffrey Baumgartner
Bwiti bvba

Erps-Kwerps (near Leuven & Brussels) Belgium