This article is tough and direct.
We aim to repudiate 90% of the garbage being spewed on YouTube about business opportunities and at the same time share pointers on how to create genuine competitive advantage in a niche business.
Give me 5 minutes here and I can save you a lot of pain.
Harsh Reality #1 – Clueless Newbies Don’t Deserve To Win
Most Internet channels run on a “winner take most” model. The “best” result ranks #1, next “best” gets #2, and so on. From a business perspective, the top guy gets 60% of clicks, the next 25%… down to 1% at the bottom of the first page. Maybe 1% of searchers go to page 2. Jimmy Hoffa is buried on page 3.
As a new fish, you get to start on page 5.
So are you really….that brilliant that your untrained efforts will beat 50+ veterans on the first try?
This isn’t just Google, by the way. Amazon, Facebook, most other places run the same way.
Harsh Reality #2 – Nobody Hands Over a Gold Mine
Assume that any person handing you advice has done the math and realized they are better off selling you the information than using it themselves.
The fair market value of an e-commerce business model is easily in the millions. So which is more likely?
- They are financial idiot savants, who can make millions in e-commerce but can’t price a product
- Profits are in decline and they realized there’s more money in selling e-books
How To Shift The Odds In Your Favor….
However, things aren’t all bad. Now that we’re seeing things clearly, here are few thoughts on how to build a side-business with sustainable competitive advantages.
Opportunity – Pick Your Competitors Wisely
As a small fish in a new market, you can rarely go wrong with a careful study of the incumbent competitors. What are they offering? What are they charging? What do customers think of them?
Define competitors broadly – address every alternative to using your services.
For example, if you’re selling IT consulting services, you’re not just competing against other IT consultants. You’re also competing against the client’s internal development team and their alternative to doing the project. How do you position against those two alternatives? Identify the gaps – and make sure to call them out.
Remember: as a small operator, you’ve got advantages too….
- You can often operate below the minimum bid of a large player. Most agencies have a minimum amount that they need to make money on a project ($10,000+). Many lone-wolf freelancers can happily operate well below that level.
- You can pick and choose your battles, focusing on the customers which are a good fit with your terms of service and outsourcing labor and inventory/logistics.
- Organizational change is inherently easier; you can easily learn new skills and adjust your operating processes to take advantage of opportunities. This could include consolidating multiple roles into one (for efficiency) or automating work.
- You can make fast decisions and offer highly engaged personal service…
Many beautiful small businesses can be created by understanding the typical cost and quality of a service from the existing providers and creatively organizing your team to do it cheaper.
Opportunity – Exploit Discrepancies In Customer Needs
The same kind of careful study also works with customers. The closer you can get to the customer base, the more you will start to appreciate the diversity of their needs. This is particularly true for businesses which sell delivered products and productized services.
For example, the following four customers are completely different markets for the same item:
- Case of Product Delivered To Loading Dock
- Case of Product Delivered To Specific Room
- Case of Product Picked Up At Your Facility
- Full Truck of Product Direct From Factory
The same set of competitors likely cannot service all of these options. Some of them may not even be able to compete at all.
Within B2B customers, there is a massive and wonderful universe of crazy which can cause your competitors to shun an account or lock them out entirely.
- Clueless About Technology (or Business)
- Long, Slow, Painful Selling Processes
- Insane Customer Service Expectations
- Wants Touch Free “Self Service” and “Done For You” Offerings
- Custom Supply Chain Systems or Payment Mechanisms
- Custom Labels and Logistics (winces painfully, bane of my existence)
Sometimes there is great value in putting up with a customer’s dysfunctional culture – if you get paid for it. Remember to price against the relevant competitors and not your cost; it is especially sweet when you take a high priced client with a dysfunctional process and automate the crazy away (dare to dream)…
Do this correctly and you’ll quickly find yourself occupying a unique place in the market…
Opportunity – Waste and Inefficiency is Everywhere
While I dearly love competitive analysis as a means of understanding opportunities, the insights are limited to the capabilities of the smartest company. What if the entire industry is run by disorganized morons?
A simple question: what would a perfectly efficient process look like?
The Lean approach to quality looks to eliminate seven basic forms of waste.
- Defects – Item Doesn’t Meet Customer Requirements
- Overproduction – Process Makes Too Many of An Item; Forecasting Errors
- Transportation – Logistics Cost of Moving Things Around, Sending Data
- Waiting – Increases Work In Process Inventory, Uses Space
- Inventory – Reduce Safety Stock, Free Up Cash
- Motion – Look For Ways To Reduce Handoffs
- Processing – Look For Ways To Eliminate Steps
How do you reduce waste? That is left as an exercise to the student.
But building a lean efficient process can give you massive cost and service advantages, which is good first step towards building a profitable and sustainable business.
Opportunity – Human Sloth & Inefficiency
Sloth. My Favorite Sin.
Truth be told, most employees don’t take a terribly deep interest in the systems and processes they are operating. As a boss this will be the bane of your existence… but as an entrepreneur or side-hustler, this can be a lovely source of opportunities.
Great things happen when you RTFM (Read The Freakin Manual) and follow its wisdom, especially if this occurs automatically. Are you a software whiz? Automate all the things. Process Expert? Looking into visual management. Control freak? Lead from the front.
The same goes for managing customer relationships. Many sales representatives ignore accounts, particularly small ones. I’ve walked into large accounts where it was obvious there hadn’t been face-to-face client meetings for years, let alone asking the client how much business they could give us..
All of this can create opportunity and competitive advantage for the hungry startup.
Opportunity – Invest in Lost Causes
You know what always perks up my ears?
A huge pile of negative comments and YouTube videos about an business opportunity, particularly the last epic sigh of toxic disillusionment which follows the newbies exiting the building. Often accompanied by a rapidly declining chart on Google trends for search term interest.
That stuff is absolutely brutal. I mean no sane person will invest in that space for the next decade.
I mean, look at this utter mess! Human sacrifice, dogs and cats living together, mass hysteria! Fire Sale Prices on Talent! Cheap Infrastructure! Zero Investment in Innovation! No New Entrants!
In other words, you’ve found a space where there will be a competitive void for a couple of years. Likely for extremely good reason. Hey, we never promised this would be easy!
The playbook for this sort of dumpster diving is pretty straightforward:
- The long term business model for the niche needs to be reinvented.
- Run lots of cheap tests early in the game with organic investment.
- Watch competitors closely and replicate any tests they scale up.
- Use acquisitions to quickly scale your winners later in the cycle.
- Be cheap and greedy. This junk bottoms at pennies on the dollar.
Set your expectations appropriately. This is usually a five to seven year play. It takes 2 – 3 years to get profitable. You may be able to make money a lot faster if you can spot an adjacent market where you can clone the best ideas of the niche which melted down.
Incidentally – this is an opportunity, not a solution. No guru has the right answer – you need to find it yourself.
But unlike a “hot niche”, this is a great place for an independent small operator to rethink the business model. For once, you are the biggest fish in the pond…
This is not one of those hokey “You Must Take Action” talks. For a large portion of our readers, action is probably the last thing you should be taking right now. You’re utterly unprepared, have unrealistic expectations, and are not ready for the inevitable setbacks. And there will be setbacks. There always are.
Relax, spend time studying opportunities, and you’ll know when you’re ready.