The NICHE market: Websters defines niche as: "a place, employment, status, or activity for which a person or thing is best fitted or a specialized market". Niche marketing may be the best strategy when going up against a big business or the established business.
There are drawbacks however to this strategy. There may be less product/service bid opportunities, higher initial costs to gear up with specialized tooling/machinery, single proposal development costs might be higher do to the complexity of the proposal. etc. The benefits may be found in less upfront marketing costs, less inventory costs, fewer marketing staff, less proposal development costs (it takes money to put a proposal together. and if you don't win you just ate those costs), etc. However, I feel that pursuing a niche market has many advantages. And, the advantage can be increased significantly if you pursue a business model that you enjoy and are good at doing.
I remember when Texas oil business was booming in the 1970s and into the early 1980s. Toward the the middle of the 1980s, oil field business began to drop drastically due to the drop in the price of oil. Businesses who were steadily providing services to the oil field industry were finding it harder and harder to find work. You can imagine the huge competition during this decline; work bids were fewer and fewer, competition became greater and greater. Bidding on projects cost money, and if you don't win, those costs effect the bottom line.
Scores of small machine shop businesses, mainly from south Texas area, came to me for advise on how they could become a prime or subcontractor on Government work. (In all my years in the business, this feast/famine was played out over and over. Even in today's economy, businesses are wanting to get more government work).
Some of these businesses had previously worked on Government projects (they were a bit more lucky), and when oil field business thrived they went were the money was to be made (not a bad strategy to chase money). Every few years these same businesses would come to me to get more Government work as the money chasing dried up. One thing going for these businesses - they had Government performance history and experience. Eventually, without diversification they were at the mercy of the few, or one perhaps (remember the adage, "never put all your eggs in one basket").
Most business that came to see me had never had prior Government work. For those who never worked for the Government - it was, "let's just say, much more difficult". Even during this time, many solicitations offered by the Government would have score after score of businesses competing on the same requirement.
I don't recall how many times I would use the term "diversification" in my professional dealings with the businesses i counseled. Even in a niche market, all business should diversify their customer base. Putting all efforts into filling the needs of one customer can lead to disaster. Remember, you go where that customer goes, they set the tone, the price, the time, etc.
I began advising them in order for them to successfully enter this or any new market they first had to accomplish a few things. First and foremost, they had to understand the market needs of this new customer and/or of its customer (the prime contractor). Not only did they have to understand what was currently being procured, they had to understand the future needs of the Government and/or its prime contractor. They also had to have "performance history". You get that by doing work for someone else perhaps, as a subcontractor or by partnering with another business. A succession of positive performance is great; and great performance history goes a long way.
I recall a new business start that wanted to get into this new action within the Government arena. I advised him of all the competition he would be up against, the experience his competitors already possessed; in other words, how difficult it would be to win his first bid. During this economic period, many of his business competitors were underbidding or low-balling their bids, hoping just to get the work. Through this process, if successful, they had hoped to get the follow-on work or try and complain they had made a mistake after winning the award. (I won't get into the semantics of this practice, but it is not legal within the Government procurement system. This practice was a significant detriment to other businesses).
I advised him that he had options to consider: start his machine shop and compete on their terms in a highly competitive market as a prime contractor or a subcontractor, find a niche market and structure his business to provide them with services they were lacking in abilities and capabilities of producing and do so in a much less competitive market arena. He eventually bought higher tolerance equipment (a 5-axes milling machine was his first purchase) and began is business by providing customers "higher tolerance piece parts", as a subcontractor.
Long story short: A great move on his part as he was very successful subcontractor and eventually became a prime contractor; he found and exploited a niche market.
This approach may not work for everyone, but a niche market was something I considered in my quest.
More to follow...
There are drawbacks however to this strategy. There may be less product/service bid opportunities, higher initial costs to gear up with specialized tooling/machinery, single proposal development costs might be higher do to the complexity of the proposal. etc. The benefits may be found in less upfront marketing costs, less inventory costs, fewer marketing staff, less proposal development costs (it takes money to put a proposal together. and if you don't win you just ate those costs), etc. However, I feel that pursuing a niche market has many advantages. And, the advantage can be increased significantly if you pursue a business model that you enjoy and are good at doing.
I remember when Texas oil business was booming in the 1970s and into the early 1980s. Toward the the middle of the 1980s, oil field business began to drop drastically due to the drop in the price of oil. Businesses who were steadily providing services to the oil field industry were finding it harder and harder to find work. You can imagine the huge competition during this decline; work bids were fewer and fewer, competition became greater and greater. Bidding on projects cost money, and if you don't win, those costs effect the bottom line.
Scores of small machine shop businesses, mainly from south Texas area, came to me for advise on how they could become a prime or subcontractor on Government work. (In all my years in the business, this feast/famine was played out over and over. Even in today's economy, businesses are wanting to get more government work).
Some of these businesses had previously worked on Government projects (they were a bit more lucky), and when oil field business thrived they went were the money was to be made (not a bad strategy to chase money). Every few years these same businesses would come to me to get more Government work as the money chasing dried up. One thing going for these businesses - they had Government performance history and experience. Eventually, without diversification they were at the mercy of the few, or one perhaps (remember the adage, "never put all your eggs in one basket").
Most business that came to see me had never had prior Government work. For those who never worked for the Government - it was, "let's just say, much more difficult". Even during this time, many solicitations offered by the Government would have score after score of businesses competing on the same requirement.
I don't recall how many times I would use the term "diversification" in my professional dealings with the businesses i counseled. Even in a niche market, all business should diversify their customer base. Putting all efforts into filling the needs of one customer can lead to disaster. Remember, you go where that customer goes, they set the tone, the price, the time, etc.
I began advising them in order for them to successfully enter this or any new market they first had to accomplish a few things. First and foremost, they had to understand the market needs of this new customer and/or of its customer (the prime contractor). Not only did they have to understand what was currently being procured, they had to understand the future needs of the Government and/or its prime contractor. They also had to have "performance history". You get that by doing work for someone else perhaps, as a subcontractor or by partnering with another business. A succession of positive performance is great; and great performance history goes a long way.
I recall a new business start that wanted to get into this new action within the Government arena. I advised him of all the competition he would be up against, the experience his competitors already possessed; in other words, how difficult it would be to win his first bid. During this economic period, many of his business competitors were underbidding or low-balling their bids, hoping just to get the work. Through this process, if successful, they had hoped to get the follow-on work or try and complain they had made a mistake after winning the award. (I won't get into the semantics of this practice, but it is not legal within the Government procurement system. This practice was a significant detriment to other businesses).
I advised him that he had options to consider: start his machine shop and compete on their terms in a highly competitive market as a prime contractor or a subcontractor, find a niche market and structure his business to provide them with services they were lacking in abilities and capabilities of producing and do so in a much less competitive market arena. He eventually bought higher tolerance equipment (a 5-axes milling machine was his first purchase) and began is business by providing customers "higher tolerance piece parts", as a subcontractor.
Long story short: A great move on his part as he was very successful subcontractor and eventually became a prime contractor; he found and exploited a niche market.
This approach may not work for everyone, but a niche market was something I considered in my quest.
More to follow...
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