Buyers like big fish in small ponds
Some business owners worry that a niche will limit their opportunities and they’ll miss sales. But a niche can often be the key to growth. What’s more, it can increase your overall business value.
Niches are attractive because it’s much easier to be #1 or #2 in a smaller, niche market. Being number one has lots of advantages, as you typically have the best margins among your competitors, more brand recognition, first call/last look with customers, and other benefits.
Businesses with higher profit margins are generally more valuable than businesses with lower margins – even if they make the same total profit per year. Higher margins mean better cash flow and cash flow is what a buyer uses to pay debt service and fuel future growth. Low margins, on the other hand, can mean less operational wiggle room and increased risk.
Why niches add value:
Having a niche makes it easier for your business to stand out in a large, crowded marketplace. Your marketing messages can be more targeted, and that makes them clearer, more personalized, and more memorable.
As a niche business, customers will see you as an expert. That expertise lends credibility to your work and helps make the decision to do business with you easier for your customers.
Shrink your competition:
In a competitive market, carving out an area of niche, specialized expertise can reduce your competitive pressures. By targeting a distinct segment of the market, you help ensure that segment thinks of you first and continually chooses you, again and again.
Compete in the age of specialization:
Remote work is accelerating the call to specialize. In the COVID-19 era, we saw more customers get accustomed to remote service delivery (e.g., remote banking, remote meetings, online exercise classes). Likewise, more businesses innovated and found ways to provide their services remotely.
If customers are no longer constrained by geographic area and travel time, it becomes easier for them to leave their local commodity service provider to seek out niche providers anywhere. A customer, for example, may be willing to leave their local financial advisor to work remotely with a firm that specializes in values-based investing.
Expertise is highly-valued. For certain customers, expertise is more important than size, location, or brand name. When you provide hard-to-find services, you can charge more for them.
When it comes time to sell your business, there can be a lot of value in being a big fish in a small pond. If you own a niche, you have more than a good story to market to customers – you have a way to stand out to buyers and investors, too.
By Scott Bushkie
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers. Follow DealCoach on Linkedin
DealCoach is headquartered in Green Bay Wisconsin with an office in Milwaukee Wisconsin and helps customers find out how much their business is worth with online business valuations and advisory services. Our business valuations also known as an Estimate of Value (EOV), help prepare buyers and sellers for the sale. DealCoach also helps business owners grow value with a Business and Market Analysis and plan for retirement, estate & financial planning, benchmarking, and strategic planning. DealCoach servers and has provided business valuations for businesses located in the United States and Canada.
We are here to tell you what you need to hear in order to make a well-informed decision with most likely the largest financial transaction of your life. Our team has over two decades of M&A experience, and we have been completing Estimates of Value for our clients for over nine years.