Niche Down

by Christopher Lochhead

  For the purposes of this discussion, let’s focus on two of the communities that TerraCycle has cultivated to help with the big waste-collection problem: consumer-product companies looking to make sure less of their packaging winds up in landfills or the ocean and schools seeking new fundraising opportunities. (There are many others, as the company outlines well on its website.)

  Both are critical for collecting trash like depleted chip bags, empty juice pouches and candy wrappers and other items that people know they shouldn’t send to landfills, but for which there is no clearly defined recycling or reuse system. And they are synergistic.

  TerraCycle’s corporate-partnership programs have snagged some very heavy hitters from the consumer-goods world, including Procter & Gamble (the giant maker of everything from Head & Shoulders shampoo to Pampers diapers) and Colgate-Palmolive (which sells toothpaste and dishwashing soap under those brands).

  Both of those companies, in collaboration with their distribution and sales channels, are long-time sponsors of TerraCycle’s drive to recycle or “upcycle” their packaging.

  In other words, they pay to help TerraCycle run initiatives that inspire individuals to become garbage collectors.

  An example of how this works is the “Recycled Playground Challenge,” which TerraCycle runs annually in collaboration with Colgate and supermarket chain ShopRite.

  The objective of the contest: collect as many empty toothpaste tubes, dental-floss dispensers and other oral-product containers as possible.

  The participating schools receive credit for the volume of packaging they collect during the three-month drive — the grand prize is a playground made out of recycled materials. The program actually runs year-round. Schools can earn donations for clubs and causes by participating, but the contest builds awareness for the plastics-recycling problem.

  Transparency Translates Into Traction

  We’re going to start this section with a confession: one of our biggest, shared pet peeves about many entrepreneurs and startup ventures is how difficult many of them make it to communicate with them or their company.

  Yes, they’ve certainly checked off the “must-have-a-website” line item on the Startup Must-Do 101 List. They may even have invested in some fancy-schmancy e-commerce technology du jour.

  But many of them have missed the memo that it might actually be useful to include contact information that bloggers, journalists, customers, potential partners (you get the idea) might actually use to make a connection.

  News flash: It’s really stupid to issue a press release about company news without offering a hint about where someone can have a question answered!

  But many, many, many entrepreneurs do this (even some really compelling niche businesses we tried to contact for this book). It’s infuriating!

  No matter how much you may personally eschew social media — we get it, the messages dominating Twitter and Facebook ain’t always pretty, and people are getting pretty fed up with visiting — you ignore them at your peril.

  Make no mistake, building a substantive “digital body of work” (essays you share on the Medium network, expertise you share on the Quora community site, images you share on the Instagram photo service, podcasts you’re a guest on, TED Talks or TED-like talks you give, etc.) and earning “social cred” (what third parties are saying about you in those places and elsewhere) really matters.

  Because today, the first thing most people do when they get introduced to you is Google your ass! Or Bing your butt. What happens after that impacts everything.

  We human beings make snap, often unconscious, decisions.

  If after searching on your name, people see your bio on your company’s website, your LinkedIn profile, blogs you’ve written, podcasts you’ve been on, videos your TED/TEDx talks, profiles of you and your business written by legitimate publications, examples of you guest-lecturing at high schools and colleges, references to your book on Amazon, your thoughtful posts on Quora, etc. — all this kind of stuff creates a very powerful, positive impression that you and / or your company are a force to be reckoned with.

  On the other hand, if people search your name and all they see is a picture of you on Facebook with a mullet hairdo, wearing a Poison t-shirt at a Metallica concert, you’re in trouble.

  Building both social cred and a meaningful digital body of work are important and will become increasingly seminal.

  This was one of the first things that consumer-category-design expert Eddie Yoon, founder of Eddie Would Grow, spent time developing when he parted ways with his big-name former employer, Cambridge Group.

  Eddie knew that in order to differentiate his services from those offered by the mammoth business-consulting companies, he needed to niche down: He’s a specialist in helping companies cultivate what he calls “superconsumers” — highly passionate and profitable customers who help drive a significant portion of any given market-category’s profit.

  Eddie was the Episode 49 & 50 guest on Legends & Losers (where the main focus was on category design, and he had plenty to say!), but we also chatted him up separately for good measure. His book, Superconsumers: A Simple, Speedy and Sustainable Path to Growth, dovetails well with many of the themes we explore here in Niche Down.

  His advice on how to build a digital-content strategy? Share your point of view, but don’t blatantly try to sell your product.

  “Be a missionary, not a mercenary,” he told us.

  “If you are a subject-matter expert. And you have a point of view. And your point of view is intended to be at its heart a generous act, you believe that there is an opportunity or you believe that there is a crisis. And you are trying to call attention to it. And you have enough expertise to back you up. That will be received and go more viral … then [the message from] anyone who is a mercenary” trying to push his or her agenda or product.

  A personal note from Heather: Putting on my editor’s hat for a moment, I can say with authority that many startups opt for the mercenary rather than the missionary position when they pitch “bylines” (the code word used by many marketers to describe articles that promote their company’s point of view). No credible publication will publish that sort of story without somehow flagging it as sponsored or advertorial in nature. Sure, sites will publish them, but most people recognize them for what they are — advertisements in disguise. What gets my attention and respect as a journalist is reading an essay from someone who has a genuinely unique point of view, something that convinces me to think differently about a particular market or business issue. So, choose wisely.

  Do yourself a favor and invest some time visiting the typical digital gathering places for the community you’re hoping to influence.

  Here are some of the questions you should ask: Do these prospective customers interact regularly on the LinkedIn professional network? Do they broadcast their favorite life moments on Instagram? Or do they share wish lists and recipes on Pinterest bulletin boards? Are they looking for help on Quora, like the thousands of readers who now buy books from Quora queen Dushka Zapata (who you met in Chapter 3)?

  At least seven in 10 Americans use social media for those activities and more, according to ongoing data49 collected by the Pew Research Center. That compares with just 5% back in 2005, when Pew began collecting information about the influence of the social sphere. For all its controversy, Facebook remains the dominant network (with 68% of U.S. adults gathering there).

  But Pinterest, Instagram and LinkedIn each influence about one-third of those who spend time online, the research shows, and they often catalyze much more specific communities of interest.

  Exhibit A: Semihandmade, an interior-design company launched in 2011 for the explicit purpose of creating “custom” doors and drawer fronts for basic Ikea kitchen, bathroom and closet systems. They look handmade, but are actually embellishments of stuff that’s off the shelf.

  How’s that
for a monster niche down?

  Founder and custom cabinet maker John McDonald was on the leading edge of the Ikea hacking movement50 — the quest by interior designers to transform off-the-shelf items from the ubiquitous Swedish furniture maker into something unique. Five years later, his company had handled more than 3,000 renovations. You can find regular updates about success stories on the company’s blog, and photos of those projects are liberally posted all over Instagram (it has more than 36,600 followers as of May 2018) and Pinterest.

  But the company’s biggest coup (so far) is the relationship it has built with Los Angeles-based interior designer-cum-lifestyle blogger Sarah Sherman Samuel — whose posts have been “shared and repinned” by millions of people. She discovered Semihandmade in 2013 while working on a personal project and, in early 2018, started collaborating with the company on a branded product line.

  “We met Sarah in 2013 when she was remodeling her Venice bungalow,” John says. “All we did was make her cabinet doors. Sarah painted them, installed the cabinets, styled the room and shot the photos. Sarah’s traditional, yet contemporary kitchen, went viral.”

  And it’s a perfect example of how exposure on social media can help establish a niche.

  Declare Your Value

  As we’ve explored in Chapter 1, one of the essential strengths of a niched-down business is that you don’t have to play the “my-price-is-better-than-your-price” game.

  The reality is that you’ll still need to figure out what to charge customers for your product or service, unless you’ve decided to operate as a charity. But even in a non-profit, you have to establish a problem people care about, if you want them to fund the solution!

  So when you’re selling a product or service for which there is no competition — like the first-ever liquid soap or personalized Ikea bling or footless pantyhose — what are the factors you should consider in the pricing formula?

  We explored this question in an interview with Rafi Mohammed, a long-time expert in pricing strategy who has worked with a gazillion Fortune 500-type brands on this problem. Rafi has written two nationally-acclaimed practical guides about this topic, The Art of Pricing: How to Find the Hidden Profits to Grow Your Business, and The 1% Windfall: How Successful Companies Use Price to Profit and Grow.

  Before we get to his advice, let’s ponder this hypothetical shopping dilemma.

  It’s Friday morning, and you’ve been on the road the entire week talking up your niche — including several late-night dinners and early-morning breakfast meetings and lots of encounters in between. You’ve got one more push ahead before you board the plane home. You could really use an energy boost, at least to make it through the morning.

  You’re in the hotel concession where you’re presented with several liquid options to get you there: a $2.50 cup of large cup of coffee, a $2.25 bottle of cold, carbonated caffeine and sugar, or a $2.99 bottlelet of 5-Hour Energy.

  We don’t really care what your personal answer is, but the prices are close enough to each other that the decision is going to come down to one of really personal preference — one guided by questions that have more to do with matters of taste like: Are you counting calories? Are you concerned about your intake of artificial substances? Or do you enjoy the taste of coffee?

  While we’re not going to launch into a detailed treatise on retailing or pricing strategy — that’s something you’ll find in Rafi’s books — the fact that those prices are so close was no accident.

  Price is a declaration of value to the customer. And you must explain your rationale if you want to win.

  In this example, the 5-Hour Energy is differentiated as unique (or “different”) because of its slightly higher price tag. But it’s not so expensive that those of us who would rather substitute a two-ounce-ish, fruit-flavored combo shot of various amino acids and nutrients for an eight-ounce cup of coffee loaded with cream and sugar won’t buy it.

  It’s also an illustration of why niche entrepreneurs need to understand the economic dynamics of “those who do it the traditional way” really well, and then pick a price point that covers their operating expenses (that’s a given, unless you’re concerned with amassing share quickly at the expense of profit) and declares uniqueness without being too much more expensive than the existing options. “Price has very little to do with cost. Price has everything to do with the next best alternatives,” Mohammed argues.

  Be prepared to articulate your differentiation.

  That means you need to be able to look someone straight in the eye and share your value proposition in such a compelling way that it converts that prospect into a believer, a customer, and a convert who can also preach your cause. That’s why you need a point of view to niche down. No new story. No new category.

  It’s the dynamic that enables Spanx to charge something like $22 for a pair of its washable, reusable shapeshifting pantyhose compared with the $6 or $7 that you’d pay for the alternative in a local pharmacy or department store. They changed the perception of the problem with their POV and that opened the category up to consider a much higher-value solution.

  Why the hell would a woman pay that difference? It’s pretty simple. The Spanx version makes the clothes you’re wearing fit better — it does away with the scourge of VPL (visible panty lines), SC (static cling) and TB (tummy bulges). Wear them three times (because they’ll actually last that long without running), and you’ve covered the cost of the cheaper alternative without compromising on the value.

  Don’t believe it? Then you don’t believe in the Spanx POV. And you’re not a Spanx customer.

  Being differentiated is more about who you are not for, than who you are for.

  In the case of the random prices we set for our 5-Hour Energy drink example, there are several simple differentiations in play that could justify the value: The drink doesn’t taste like coffee or tea (“different” than the traditional, morning breakfast beverage), and it isn’t loaded with sugar or carbonation (“different” than the sodas people typically imbibe for a caffeine jolt). If you buy into those arguments, then it’s the right alternative for you. “Value is in the eye of the beholder,” Mohammed says.

  Category design is the practice of teaching the “beholders” you care about to value your offering the way you do.

  The process of establishing value is similar in the world of services, especially if you personally fill a niche no one else can fill.

  Our friend, Eddie Yoon, freely admits that he used his institutional knowledge of big-company consulting fees to develop his own model. “The challenge you may have, which may surprise you, is that you have too much demand,” he observed during our interview for this book. “Make sure you’re selective about who you take on or don’t take on.”

  You might also choose a different way to sell your expertise at scale — by using the rich array of technologies that are emerging to enable this, like podcasts, video-streaming platforms and newsletter-distribution services. It’s not exactly one-on-one, but these mediums all have a way of making the audience feel like they have a personal relationship with the host.

  You can think of it as a high-tech version of the business world circa 1870, when pharmacists personally mixed up the prescription to treat your ailments and all of your clothing was bespoke, sewn by local seamstress and tailors. The phrase “off the shelf” actually didn’t factor in the contemporary lexicon until almost 70 years later, coined in the era of mass production that followed World War II.

  “These technologies will take you back to a time when you actually knew your customers and tailored things to their exact needs,” argues Kevin Maney, co-author of Christopher’s first book Play Bigger. Kevin’s latest title is Unscaled: How AI and a New Generation of Upstarts are Creating the New Economy of the Future. He spoke with Christopher about the central thesis — how artificial intelligence can help startups forge tighter customer relationships on
a Legends & Losers podcast episode51 that aired in March 2018.

  An example of this concept in practice is Stratechery, a media and consulting newsletter that offers ongoing analysis of technology giants like Apple, Facebook, Google and Microsoft. Created by former marketing and strategy executive Ben Thompson, his site publishes a weekly analysis that you can read for free and three daily updates every week that only subscribers receive. Ben also co-hosts a weekly podcast called Exponent with Harvard Business Review writer James Allworthy.

  As both of your co-authors can attest, there are plenty of sites hawking tech news. Stratechery isn’t trying to beat them for clicks or scoops. It lets the classic media sites beat themselves senseless trying to play that game.

  Rather, Ben appeals to industry insiders trying to figure out how to apply twists and turns to their own jobs. After all, he’s “one of them” at heart.

  Today, his newsletter is a Silicon Valley must-read52 in certain executive and investor circles. Ben amassed more than 2,000 subscribers within two years of his launch in 2013 — at $100 per year, that’s nothing to sneeze at for what amounts to a one-person blogging organization.

  As subscriber Aaron Levie, CEO of cloud software company Box, gushes in one of the site’s testimonials: “Ben Thompson’s depth of thinking and analysis around technology trends and market disruption is pretty much unparalleled. The ratio of ‘Wow, that’s an interesting way to think about it’ reactions to dollars spent on the Stratechery subscription is off the charts.”

  Ben doesn’t reveal exactly how many subscribers he reaches, but his model allows him to live and work on his own terms in Taipei, Taiwan — taking on only the consulting projects he wants.

  “The Internet enables niche in a massively powerful way, where you can focus and be really good at one thing,” he said during tech-media publisher Recode’s annual conference53 in February 2017. “And because you’re not constrained to a geographic area, you can reach the entire world. I have subscribers in 30 countries.”