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Understanding your Target Market

July 25th 2019

The Fundamental Dilemma


Knowing what a company is selling and whom it’s selling to is the cornerstone for beginning and running a business. To keep the owner and its company thriving, one has to consider if they have a place in the market and if there is the opportunity for expansive growth over time. Using the idea that a company has a universal product is a significant pitfall for most businesses; as they may think they have many options and directions at their disposal. Not defining a target market may lead to the failure of a company entirely.


The Need and Importance of a Niche


The most fundamental idea is that a new company should find a niche in their market. This is important because it is a starting point for a company to slowly, but surely get the ball rolling. A niche is a part of the market where a company has much success and does what they’re best at doing. A place where the market overlooks and an opportunity can be exploited by anyone who wants to. This may be as simple as selling fresh produce to their local neighbors, or as complicated as opening an exporting firm to transfer fresh produce across neighboring borders around Europe. One has to asses their options and the implications some choices will have on long term growth. Starting small as most companies do can make this decision even more critical as choosing a niche can decide how fast a company can grow, if at all.


Starting Your Search


To start the search for a niche, a company has to consider three things, its Target Addressable Market, its Serviceable Addressable Market and its Serviceable Obtainable Market. It is alternatively known as; one’s TAM, SAM, and SOM. The Target Addressable Market describes what the company wants to sell in the aggregate and what it can charge for its product or service. Companies should be wary of again being general and thinking that their product or service has universal utility for all. Understanding the TAM is what a company must do to convey to investors and lenders from whom they need financing that they have a legitimate business idea.


Utilizing the caution from the first step, the next step in finding a niche is understanding one’s Serviceable Addressable Market. Finding the SAM is essential as it leads to the realization that the company is not alone in the venture for market share. The competition will always be in the way as an entrepreneur, and ones SAM is specific to a business’s location and the competitors around them. The example of fresh food markets or the few significant exporting firms is an example of a SAM. These competitors can either be in the way or leave a missing piece a company can exploit if they find it.


Once a company can recognize that there is an opportunity even with the competition, they can move into a more realistic phase of the niche search. A final realization a company must observe is their Serviceable Obtainable Market, or what the open SAM can provide in possible market share. This is important to come to terms with as it gives a company a starting point to start attending to the customers they need to get their business started. Finding that there is a lack of different produce or food that no one can get, or lacking supply in general, is what one new company can take advantage of and find success.


Things to do In search of a Niche

  • Create a business idea that has a specific purpose and utility.
  • Discuss with lenders describing the ability to address that specific purpose (TAM).
  • Then, on their own, find the area where they are able to sell effectively (SAM).
  • Finally, in that said area, find what market share is obtainable in that market (SOM).


Moving Forward

Having the first sale in a business can be an adrenaline rush of excitement, as one just found success after much hard work. Companies have to be consistent in hitting their niche day in and day out, and success will follow. Owning a business can be stressful and exhausting, but finding a niche will slowly but surely lead someone to diversify into different customers around them and expand their business over time. Starting with what someone is good at can lead to much success for themselves and their company in the future



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