Niche Down

by Christopher Lochhead

  For Christopher, it’s Wilensky’s Light Lunch, a Jewish deli in downtown Montreal that harkens back to 1932. Don’t ask for special anything if you drop by for some nosh. The staff never cuts the smoked-meat sandwiches in two, always serves them with mustard and discourages tips for upholding the joint’s reputation. Any spare change left on the counter goes to a local heart foundation.

  Who is the Jimmy the Fish or the Wilensky’s Light Lunch in your own community? We’ll bet you can come up with more than one name in way less than one minute.

  The Giant Opportunity In the Troubling Data

  There are scads of stats to back up our and your personal anecdotes about the vital role entrepreneurs play in making the economy go-round.

  Consider the trends on Heather and Christopher’s home turf of the U.S. of A.

  The U.S. Small Business Administration estimates that from the first quarter of 1993 through the third quarter of 2016, firms with 500 employees (its definition of “small business,” there are many others) generated 61.8% of all new jobs.

  That figure includes the impact of two huge nationwide dips during the recessions of 2001 to 2002 and 2008 to 2010.

  In any given year, roughly 8% of all the small businesses considered in SBA’s annual census are startups — that is, ventures that are less than one year old.

  The founders behind those newbie companies are diverse in the literal and figurative sense.

  In 2012, close to one-third of U.S. small businesses were female-owned;

  Close to one-third had been started by demographic minorities, led by Hispanics;

  And at least half were home-based, most notably ventures related to information services (like both Christopher’s and Heather’s!), construction or professional services.

  Sounds great, right?

  A win for entrepreneurship!

  Actually, not so much.

  Especially when you realize startups and solopreneurs accounted for 12% of all U.S. companies in 1980.

  Fact: We’re starting considerably fewer startups on an annual basis than 25 years ago.

  The data says American entrepreneurs have been steadily losing ground over the intervening decades4.

  Things have gotten so bad that The Wall Street Journal recently declared “A Crisis In American Entrepreneurship,”5 citing as evidence ongoing research6 from the Massachusetts Institute of Technology Lab for Innovation Science and Policy. “To the extent that the current state of American entrepreneurship is facing a crisis, it is not in the rate of creation of high growth-potential startups or even in the initial funding of those firms, but, instead, in the potential of those firms to scale in a meaningful way over time,” the MIT researchers wrote.

  Where are the entrepreneurs?

  We could spout plenty of excuses, reasons, theories, and data — all of them valid, none of them entirely the root cause.

  Here are some of the more obvious ones.

  The demographics.

  For one thing, the Millennial generation (those of us born from 1982 to 2000) seems less inclined to work for themselves than their elders who are still in the workforce.

  Fewer than 2% of less-than-30-somethings identified as self-employed in 2014.

  Even though they like the idea of being “entrepreneurial, they’re not actually starting new companies7.

  Perhaps they’re shackled by the heavy weight of student loans.8

  Maybe they just have a smaller appetite for risk than their parents. Whatever the case, it’s not a rosy long-term trend indicator. “Low entrepreneurship among Millennials implies fewer new businesses and may, therefore, have negative implications for economic growth,” the SBA notes in an analysis.

  There are financial factors.

  Outside of Silicon Valley, it’s criminal how difficult it is for entrepreneurs and small businesses to raise outside funding — the most common model is “bootstrapping” with personal or family savings.

  Only 4.5% use loans from financial institutions to grow their ideas, at least in part because they’re so darn hard to get.

  This makes Christopher want 20 seconds alone in a room with a few bank CEOs.

  And we don’t want to get too political, but the salt in this wound is that in 2008, the American taxpayer invested $700 billion to bail out the exact banks that now won’t lend to the American entrepreneur.

  The people who fucked the economy now won’t fund the people who build the economy.

  Just sayin.’

  But probably the most telling data relates to the rate of business failures — it’s tough to keep a company afloat, let alone profitable over the long term. Government statistics show that roughly 20% of all new companies don’t make it through their first year; half make it through five years and only one-third live to celebrate their 10th anniversary.

  That’s a pretty high mortality rate. No wonder risk-averse Millennials or Gen Xers or Baby Boomers or insert-your-fave-generation here are so skittish.

  How can a solopreneur or entrepreneur not just survive, but thrive, well into the second decade?

  Yes, it takes certainly creativity and conviction and cash and courage — and, ultimately, a category that matters and product or service that someone is actually willing to buy.

  But, we’d argue that the single most important secret to successful entrepreneurship starts with this simple, profound decision:

  Am I going to find my place in the world or make my place in the world?

  Creative people, inventors, pioneers, pirates and rabble rousers generally don’t fit. That is to say, there’s not an existing job that works for them. Success comes from the commitment to be unique, rather than better-from the conscious and deliberate vow to capture and conquer your own niche.

  Don’t Make This Horrible Mistake!

  In the movie “There’s Something About Mary” there is a scene during which the Ben Stiller character picks up a crazed hitchhiker — played by the legendary comedian Harland Williams.

  As the vignette plays out, Williams’ would-be entrepreneur enthusiastically pitches his captive audience his can’t-miss business idea: a “7-Minute Abs” video that he is convinced will outsell the popular “8-Minute Abs” workout.

  A no-brainer, right? Right?

  A skeptical Stiller responds with: “That’s good — unless, of course, somebody comes up with ‘6-Minute Abs.’ Then you’re in trouble, huh?”

  At which point the hitchhiker and would-be entrepreneur starts convulsing in the passenger seat, dismayed by the wake-up call that all but banishes his dream.

  Here’s the reality: Many solopreneurs and startups are positioning themselves to become “7-Minute Disasters,” just like Harland’s character.

  That may sound like a harsh observation, but think about it. Most people and most businesses are building entire companies on go-to-market plans that attack an existing market category with a strategy of “we’re better.”

  They spend their lives competing in a game they can’t win, instead of having the courage to create their own game.

  Pepsi just well might be the most tragic, quintessential example in history of the 7-Minute Loser blunder.

  It made a multi-billion-dollar mistake by running ads comparing itself to Coca-Cola. “The Pepsi Challenge” proclaimed to the world that Pepsi’s cola tasted better than Coke. Go on, try us side by side, the marketers urged. All this campaign did was reinforce Coke’s leadership position, its unique market-category leadership.

  After decades of cola category wars, Coke is still No. 1.

  Even neighborhood pizza joints suffer the same fates when they compare themselves to rivals.

  In the five square miles surrounding the village in Northern New Jersey where Heather makes her home, there are literally 30 restaurants that sell some sort of dough-covered-with-cheese-and-other-stuff — and
that’s just the ones that market themselves online.

  Most of these establishments are tossing some sort of twist on the “New-York style.” But there is just one that specializes in wafer-thin-crust pies that are totally unlike the fare you find at your average pizza parlor anywhere else in the state, or the country for that matter.

  It’s called Nellie’s Place, established back in 1989 by Irish immigrants (you don’t need to be Italian to “own” an Italian food category!) and still a vital part of community.

  The rest of Nellie’s menu is actually pretty ordinary. You go there for the pies (don’t bother buying the small one because you’ll look like a lightweight) and the Irish draft ales.

  You’ll often wait an hour for the privilege of finding a seat. Nellie’s doesn’t deliver, but it’s usually flooded with takeout orders. If you don’t like thin-crust pizza, don’t go there. Call one of the other 29 or so places that are competing on price or on the promise that they will beat a path to your doorstep a few minutes quicker than the other guys.

  Sure, some of those other pizza joints do sell thin crust as a menu option ‘cause it’s a Jersey thing, but Nellie’s is the name you remember on Heather’s dead-end street.

  Nellie’s wins by offering different pizza, not better pizza.

  No matter where your company is located or how big it is, when you position your business or yourself as “better” than some other option, you are invading someone else’s queendom. You are fighting for attention, messaging your mission according to someone else’s rules — a person or business that your customers already know.

  You’re playing a comparison game.

  And when two people say, “I’m the best,” by definition one is lying.

  Making it worse, the game you’re playing is a game invented by someone other than you. They set the agenda in the minds of the category. Not you. They frame the problem. They educate the world on how to solve the problem and what the product or service is worth. So, you will always be compared to “them.”

  We are begging.

  Please don’t be a “7-Minute Disaster.” Don’t compete on someone else’s terms.

  Instead, design your own market category. Become known for a niche you can own. That way, others will follow you. Others will be compared to you versus you being compared to others.

  That’s a good thing.

  If you are open to soaking in the ideas that we present throughout this book, you’ll gain real insights into how to be crowned category queen or king. The person who solves a specific problem in a unique way. The person who changes people’s thinking with a different point of view. The person who makes their own place in the world. The person who makes a giant difference in a given category. The person who captures outsized earnings.

  Be Different, Not Better

  It doesn’t matter whether your objective is to mold a professional-services business on your own or to build a small venture that employs others who believe in your mission. Designing a unique and distinct category niche is the biggest step that any entrepreneur — whether she is going it alone or leading others — can take towards successfully carving out territory in the minds of the audience she wants to attract.

  It comes down to leveraging the exponential value of what makes you or your venture “different” rather than leaning on the incremental value of what makes you “better.”

  There’s no such thing as a business that exists in a vacuum. Here’s proof from the restaurant world.

  If we say to you, “Let’s go to Gabriella’s for dinner!” your logical response might be, “What type of food does it serve?” When you ask that, what you’re really asking is, “What category of restaurant is Gabriella’s?”

  In any buying decision, humans need to know the category first, then they’ll consider the brand second. It’s how we make sense of the world.

  Person A: “Want a piece of gum?”

  Person B: “What kind of gum is it?”

  Person A: “Honey, can you pick up some Scotch on the way home?”

  Person B: “What type of Scotch would you like?”

  Category first, brand second.

  Examples are all around your neighborhood, your slice of the world.

  Nursing a cavity? Need to have your teeth cleaned? You have to know what a dentist is and believe he or she solves an important problem before you start shopping for one. And dentists intuitively understand that people shop category first and brand second.

  That’s why almost every dental sign you see in America says in BIG FONT, “DENTIST” and in small font, “Jane Jones, DDS.” Dentists instinctively understand — category first, brand second.

  Your No. 1 goal on the path to legendary is to achieve a unique position, one with which your brand can become synonymous.

  Imagine being so respected in your field that other people who do similar things are compared to you, because you are the category queen — the leader in mindshare.

  Examples are everywhere.

  Take legendary boxer Muhammad Ali, born Cassius Clay.

  You could describe the heavyweight champion as a great athlete and he was, holding several records for close to four decades and topping rankings by Sports Illustrated and the BBC. But the real reason Ali occupies such a unique piece in people’s hearts and minds is that he created his own category — he was the original social-activist athlete.

  Ali wasn’t afraid to use his voice at a time when others in his position usually deferred to their managers.

  Ali was the first athlete to take a very public stand for civil rights and social justice — refusing to be drafted into the U.S. military in the mid-1960s, citing both his religion (he converted to Islam) and his objection to the Vietnam War.

  Ali’s status as champion kept him — and these issues — in the spotlight during the five years he fought his draft conviction, eventually winning an appeal to the U.S. Supreme Court in 1971.

  Even though he was stripped of his titles and banned from the sport he loved during the prolonged legal battle, Ali was often dead center in the ring of public opinion, for good and for bad. His return to the ring was relatively seamless as a result. That’s why Ali transcended boxing and became a category king, the person to whom all other “combat athletes” are compared.

  Isn’t that just good branding, you ask? No. It’s not.

  Quite bluntly, branding in the absence of category creation is bullshit.

  Categories Make Brands

  Some evidence please?

  You got it.

  Undeniably, Dell has a great brand in personal computers. And “back in the day,” Michael Dell was a celebrated entrepreneur.

  Today no one cares.

  Because the cloud, mobile computing, and virtualization categories made the personal computer category a mature, low growth, low-innovation category. And as a result, Dell’s brand doesn’t matter. Dell is the victim of category violence.

  Someone else changed the agenda in tech and Dell “didn’t get the tweet.”

  Categories make brands.

  Even category kings and queens have trouble treading on turf that others claimed before them. Google definitely has a legendary brand because it is the category king in search. It’s even used as a verb! But the Internet giant’s attempt to break into social-networking services in 2011 with Google Plus has been an epic flop.

  That’s because Google tried to compete mano a mano against Facebook, which clearly wrote the rules of the category. Three executives and a major redesign later, the Google-Plus service stills exists and persists — and it has an impressive audience of 111 million users. That is, until you consider that Facebook is closing in on 2 billion.

  Google’s legendary brand in search was of zero value when the company strayed out of its category and moved into Facebook’s. No wonder Google has all but retreated.

&
nbsp; Look around your town, your city, your state and you’ll see this dynamic playing out all around you with businesses large and small.

  Think of all the local gyms and fitness clubs that compete by discounting the heck out of their monthly fees, especially in January, when just about everyone has resolved to be a fitter, trimmer version of him or herself. Sure, those campaigns might net a few new members. But the hard, cold facts show that competing in an existing category is a race to the bottom.

  If everyone says they are “better,” consumers get confused. They assume if everyone says they are “the best” at what they do, the only way to make a decision is to compare.

  The first thing they compare is price. And that starts the race to the bottom. It’s like watching two prizefighters stand in the middle of the ring and pound the shit out of each other.

  It might be fun to watch a Rock ‘Em Sock ‘Em Robots-style fight, but it sucks for the robots.

  Companies that compete with each other in the traditional ways end up destroying much of the margin and profit in the whole market category.

  Why not instead design something unique, like a fitness club that caters solely to women with classes unique to their needs? Throw in daycare options for the moms in the crowd, and schedule the class times around school drop-offs and pickups, not just traditional work hours.

  Or instead of opening a generic bakery, why not niche down and design a category you can own, like Dena Tripp and Debbie Shwetz, the co-founders of Nothing Bundt Cakes? When the ladies got started on their “side project,” there was no market or demand for a bundt-cake specialist.

  They designed the category. They niched down.