BOUNTIES ON STRANGE SHORES

Sashi Chimala
Outlook Business (Edition: August 9, 2008)

There is a saying in the venture capital circles: a needle is stronger than a hammer. The point is that a small business has a better chance of market penetration by being sharply focused. In fact, focusing on a niche that is neglected by the bigger companies is sometimes the best strategy to make a huge impact, and possibly build the next Microsoft or Google.

When IBM approached a young Bill Gates in 1980 to build the DOS operating system, Big Blue was trying to outsource what it thought was a less important and non-critical task. As history proved otherwise, the PC became the single greatest invention of this century. And IBM’s lack of understanding of the potential of the ‘niche’ personal computer business opened the windows to Microsoft’s eventual domination of the industry.

While Microsoft was considered the undisputed leader in the software business until just a few years ago, a little known company called Google entered the small but growing area called the Internet search business. At that time, this was viewed as a not-so-attractive area, and the revenue potential was bleak, if not non-existent. At a June 2008 Microsoft event, Bill Gates admitted to Microsoft being the "real underdog" compared to Google.

What Google achieved in a very short span is no accident. The annals of business history is full of examples of small and nimble companies outpacing their bigger rivals by focusing on a small, under-served niche that the bigger companies often ignored. Identifying such gaps in any business area is perhaps the best chance for budding entrepreneurs to break into the business scene and make a huge impact. So, how does one go about identifying the niche and building a successful business around such a gap?

The orientation
Focus on ‘why’ and not just ‘what’. Understanding people’s deeper motivations is where the biggest opportunities for new ideas can be found. This approach opens up your eyes to ‘not-yet-fulfilled needs’. Starbucks Coffee is a great example. While the large players like McDonalds concentrated on ‘being everything to everyone’, Starbucks focused on just one speciality: coffee and related beverages. Today, even after 37 years since its inception, there is no significant competitor to Starbucks.

Not just niche, but a niche with potential. There are two types of areas that entrepreneurs can focus on: areas that continue to remain a niche and serve a small, specialised set of customers and areas that have the potential to become more mainstream as more customers adopt the trends in the future. The latter kind, obviously, has the best potential.

When you analyse successful companies that grew from a small speciality, you will notice that the entrepreneurs behind them identified a niche that was not currently served by existing competitors, but also had a huge potential to be tomorrow’s mainstream businesses. Then they designed their products and their companies to suit the needs of this customer segment. The international business landscape is full of success stories of many entrepreneurial Davids beating the mega business Goliaths. One of the best examples is Southwest Airlines. When Southwest entered the business, the airlines industry was dominated by big companies boasting a diversified mix of jumbo jets to commuter planes that served a wide network covering hundreds of terminals. Herb Kelleher, CEO of Southwest Airlines, focused on a unique market niche: They were the world’s only short-haul, high-frequency, low-fare, point-to-point carrier. They even simplified the entire process by purchasing just one type of aircraft. In the long run, the results spoke loud and clear. It is one of the few airlines that has shown a profit nearly every quarter since inception. Not surprisingly, Southwest thrived well even when economies were in recession. Today, after almost 36 years, when most major airlines are considering bankruptcy, Southwest continues to be strong.