What is Home Depot Doing in my Niche?

Almost every entrepreneur believes that they are in a niche. In a niche strategy, the entrepreneur finds a small part of a market that is not being served or is significantly under-served. A niche strategy gives the entrepreneur a safer market with less competition and a more dependent market.
Generally, a niche strategy is a good way to enter the market for a new business. It usually takes fewer resources for the start-up, due to lower marketing costs and the ability to start on a smaller scale. Success rates tend to be higher for niche businesses since they have less direct competition. Without much competition, niche businesses can charge higher prices, which allows for quicker positive cash flow during start-up and better margins once profitable.
But, as the old saying goes, all good things come to an end. Thus is the case with entrepreneurs across the country running Mom & Pop car washes, according to a story at StartupJournal, which have operated for years in safe little niches, amassing their quarters into nice little sums of wealth. It seems that Home Depot and Sam’s Club have caught on to these little cash machines.
While significant growth in your market niche may not sound bad, it can attract more competitors. And if it grows large enough, it can attract some of the “big boys.” At some point your cozy little niche can feel quite crowded and really is no longer a niche. That requires that you adapt your business strategies to this more competitive market.
One strategy is to fight the “big boys” head on. Your pricing will be forced downward, while the cost of business may go up due to increased marketing costs, greater expectations from your customers, and higher labor costs due to more competition for your best staff. Your goal becomes keeping market share in the increasingly competitive market, as you will now need volume to assure profitability. When fighting with the likes of Sam’s and Home Depot, this may be a losing strategy. Their pockets are so much deeper than yours.
Another strategy is to adapt. Give your customers new features that the “big boys” don’t offer to differentiate your business from their more generic approach.

Facing growing competition,…car washes around the country are launching new services aimed at grabbing customers’ interest. Some are promising shorter cleaning times and opening plush waiting rooms with Wi-Fi service. Others are pitching Netflix-style discount plans in which customers pay monthly for unlimited washes. Some are even washing the family dog.

While you will lose market share to the “big boys,” your enhanced offerings can be offered a premium price. Rather than competing head on as a commodity, which they will win almost every time, these entrepreneurs are creating in effect a new product for those customers who are looking for more than a generic car wash. They are redefining their product by creating an experience that has more value and more appeal to a certain segment of the market.
So is a niche a good place to enter the market? Absolutely. However, change is inevitable and even in a niche market an entrepreneur needs to be able to adapt to survive over the longer-term.
(Thanks to John Russell for suggesting this topic).