So you’ve decided to buy a business, but you aren’t sure what niche you should get into. You’ve come to the right place. Chances are you already have some idea about what industry you want to be in, but when it comes down to the nitty gritty of buying a business, finding the right niche within that industry will make all the difference.
Buy a business and think in niches
A great way to get started is to start looking at some of the businesses that are available to buy in the industry you want to be in. If you look closely at each of these businesses, you will notice that they are stronger in some parts of the industry than others. This will get you thinking about your selected industry in niches rather than as a broad industry.
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
For example, let's say you want to get into the retail business. Of course, there are many different forms of retail you can get into, and you probably have some idea of the types of things you want to sell. However, if you're going to compete against the big box stores, you'll want to buy a business that specializes in something you are already an expert on.
You want to look for a business that's the go-to destination for some product that you already know a lot about. The key is to think narrow but not so narrow that your customer base will be tiny, and there won't be much traffic in your store.
Buy into a business niche that solves problems
One thing you will notice as you study different niches within the industry you have selected is that some tend to solve more problems than others. Do some research to find out what kinds of common problems are had be customers who frequent the businesses you are looking at.
A great way to do this is to look at online forums. Reddit and Quora are excellent places to start, but don't neglect forums that are specifically geared toward the industry you are interested in. As you look at businesses that are for sale, you will be able to identify which ones are better at solving common problems than others.
In some cases, you might even be able to take a business that doesn't solve a problem and change it just slightly so that it does. For example, maybe you're interested in photography, and you're thinking about buying a camera store.
One of the common problems that customers may have is needing expertise on taking pictures or classes to teach them photography skills. This is something that can be easily fixed if you buy a camera store, but you should make sure it's something you can pull off before you move forward with buying it.
After breaking down the industry you want to buy a business in into niches and looking for problems to solve, it's time to start thinking about profits. Some parts of the industry will come with higher profit margins than others, and some businesses will have higher margins than others, even within the niche you are thinking about targeting.
Margins aren't the only thing to think about when it comes to profits. Sometimes lower margins are acceptable if vast quantities of products are being moved. For example, Amazon has razor-thin margins, but it moves far more products than many retailers do, so it still is a very profitable business.
If you are deciding between two niches within your chosen industry, you might choose one over the other because it has higher margins. On the other hand, you might choose the other because even though its margins are lower, the business sells a lot more goods or services.
Consider the competition
One other thing to think about when choosing a niche in which to buy a business is the competition. Some niches have a lot of competition, while others have very few solid players with little competition. You might want to lean toward the niche with less competition because it will be easier to build up the business.
You should also look at the quality of the competition in the niche you are thinking about buying a business in. As you study each business that's for sale, you may find one that's the main player within its niche and that it's up against relatively weak competition.
On the other hand, you might find a business that's essentially the only player in its niche because it has already beaten back the competition. Either scenario will likely result in a good, strong business for you to buy within your selected niche.
Final tips for selecting a niche in which to buy a business
When you're looking at niches in which to buy a business, there's an easy step-by-step process that will help you choose the best one for you:
- Choose your industry and then look at niches within that industry. Break down the industry into specific areas and look at examples of businesses for sale in each of those areas.
- Narrow down your options to one or two businesses in up to four different niches. Then you can really start looking at each business closely and considering the niche they are in.
- Study each of the businesses left on your list and look at their margins and profitability, competition, and other factors that affect not only the businesses themselves but also the niches they are in.
- Think about which niche you have the most expertise and interest in, and use that to narrow your list of available businesses further.
- Cut your list of niches to one or two and reduce the number of businesses you are thinking about buying to one or two in each niche. Make a list of the pros and cons of buying each of the businesses, including the benefits and challenges of being in each of the niches they are in.
When you finally choose a niche in which to buy a business, you will have taken into consideration all of the factors that make a business successful. There will probably be more than one good business to consider in the industry you want to be in, but by factoring the business' niche into your consideration, you will be more likely to choose the business that's right for you.