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The importance of conducting due diligence on a niche market for your business

Here is a common business description one often hears from entrepreneurs: "We are a marketing company, we create brochures, design Web sites, ad campaigns, marketing collateral and we help companies with brand building."

So what sort of businesses do you target? "We work with Fortune 500 companies and small businesses. No job is too small."

Why would you want to give the crucial task of shaping your brand image to a company that does not seem to understand the benefit of choosing a niche and developing and expanding that niche? The irony of being a "catch-all" firm that has the gall to offer brand building services to all and sundry seems to be lost on such firms, and the market is flooded with many such me-too entities.

Branding is all about differentiating your product and your business from the rest of the field. A niche is that sweet spot in the market that no one has filled, which offers a lot of scope for business. Which leads to the million-dollar question -- how does one find a good niche market?

Every one knows about the success of mega-brands like FedEx in the niche market of overnight couriers, but what most of us want to know is how local small businesses in comparable fields found that crucial niche and made a success of it.

So here's a glimpse at a few select local companies that either chanced upon or researched and found their niche market and built a thriving business.

CUSO Financial Services, located in Sorrento Valley, is an $80 million company that focuses on partnering with credit unions to offer investment and financial services. When founders Valorie Seyfert and Amy Beattie went into business 12 years ago, many industry insiders scoffed at the two women, telling them not to bother targeting credit unions, that there was no money to be made in that area.

But with their background in the industry, the two women knew there was an opportunity to help credit unions increase earnings from nontraditional means, since net income from interest was shrinking. It required a paradigm shift for the credit unions, which had never viewed investment services as a profit center.

"We spent a lot of time networking with credit union industry leaders, and we realized that the CUs would need more than just the basic back-office services. So with the goal of being a total solution, we offered support in the areas of sales and technology and brought a diverse offering of investment products to the table," Beattie said.

This strategy helped grow the company's niche market and expand it.

One common mistake that most business owners make is to assume that focusing on an exclusive niche means limiting themselves and the potential streams of revenue, so they subscribe to the logic of offering a wide range of services or products or they target very different markets.

This ends up leaving them stretched thin, without the ability to establish themselves in any one particular area. But a direct result of choosing a niche and establishing yourself in it is the aura of expertise and knowledge that comes with it.

This in turn leads to more business in that area, as well as requests to provide services in related areas, which becomes your opportunity to expand and grow your niche. Specialization is the key to successful niche marketing. For some, diligent research leads to finding that underserved market; for others, it is a stroke of luck.

Oceanside Photo and Telescope (OPT) is a $17 million exclusive retailer of optical equipment, chiefly telescopes targeted at a male audience aged 35-65, with an avid interest in astronomy.

For Craig Weatherwax, the owner of OPT, it was serendipity that led to finding a successful niche market for his business. In 1982, he was actively looking for a new avenue for revenue, since his margins were shrinking as a camera retailer up against the big guns.

"I was not sure about the direction to head in, but I knew I wanted to stay within the familiar territory of optical equipment," he said. Then a well-known manufacturer of telescopes asked him to carry a particular model in his store and he decided to try it out.

A week later, the telescope sold for $1,500, and he realized the potential in this exclusive field and immediately decided to focus his store as a telescope retailer. Going online and establishing an e-commerce site helped expand the market for his telescopes. Today the company employs 32 people and still focuses exclusively on telescopes.

There are many such examples of successful niche marketing, businesses that often fly under the radar of the popular press, but are nevertheless making significant headway in their fields.

Inventure Global is a three-year-old company that has grown by 50 percent every year. It offers one-stop shop IT outsourcing for small and medium size start-up technology businesses.

Ordinarily, one associates outsourcing with the tech majors, such as IBM (NYSE: IBM) and Microsoft (Nasdaq: MSFT). But Chris Harris, president of Inventure, knew this market well and saw that it was underserved.

He knew the market requirements -- the ability to work at start-up speed, shortening the development cycle and getting to market as fast as possible. This gave him and his partner the confidence to launch a business targeting this niche market.

Harris offered these words of wisdom on choosing a niche: "Really focus on the value you can bring to your niche. A niche is only valuable for a prospective business when its needs are not (being served) by the status quo. If you decide on a particular niche, you are narrowing your focus in a certain sense, but it (also enables you) to widen the lens in other ways."

Nagappan is a San Diego-based freelance business writer.

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