By its very nature, a small business has only limited resources at its disposal. Developing a market consumes a large proportion of these resources and knowing how and where to focus is critical to its success and growth.
The Same Customer Pool
It’s tempting to look at the biggest possible market because with a large pool of potential customers, even a low sales conversion rate will produce a viable or predictable turnover. But the marketing penetration and coverage for a small business, especially when it is competing with large corporations, is extremely difficult.
Too Much to Handle
The return on investment during the period when the effort to consolidate market share is being made can break a small business since it has limited time, money, and manpower at its disposal. Additionally, the larger the market, the more diverse it is and most small businesses do not have the experience to appreciate the many variables involved. This is what happened to Good Gardens, a small garden supply company on the west coast.
From Conception to Reality
The owner of the business, Jack Rogan, had 20 years of gardening and landscaping experience behind him; servicing a number of regular clients in the San Francisco Bay Area. He saw both the attractive margins on the retail prices of gardening equipment and materials as well as the difficulties homeowners had in finding the time to go from store to store to look at the various options available to them, understanding what they needed and then purchasing a tool and/or product.
He decided that online small businesses that offered home owners a wide selection of equipment and materials, could survive and perform well. This virtual small business could help itself as well by providing information to customers about how to use these products and materials. This home delivery service for home owners would fill a major void in the market. With this in mind he started Good Gardens.
His wife, who had worked in e-commerce, provided him with the support he needed to set up the required infrastructure. And his clients from his days as a professional gardener formed his initial market.
Coming Up Short
The first 6 months had its ups and downs but he was able to establish a small customer base in a few towns in Santa Clara County. But his business plan was based on developing the whole of California as his market, despite this though, no matter how much effort and money he put into publicizing his business, it remained Bay Area centric. This was not good. Because his business came with low margins, he needed larger volume in terms of sales, thus statewide penetration, to survive. His online business was basically static or unmoving; it was not enough to sustain the operation.
After a year of struggle, during which time his business’s growth was insignificant, Jack realized there was something wrong with his business plan. His experience told him that his range of products was exactly what the market needed, his prices were competitive, and the detailed information on the items available were what customers needed. The feedback he received from his limited clientele confirmed this.
On a Mission
So where was the bottleneck? His twenty years of experience told him he was doing the right thing. Difficult though the decision as, he put his business on hold and set off to travel around the state and spend some time at various horticulture institutes and societies to find out where he was going wrong.
Four months later he had his answer. The problem was with his experience – it was all Bay Area centric. California, with its large land area, different climatic conditions and wide difference in socio-economic strata, was not a homogeneous market, such as the Bay Area. A simple example was that while for the relatively prosperous Santa Clara homeowner, newer tools, ease of use, and quick results were prime purchase considerations. But in other parts of the state, pricing was a major concern. And the wide variations in home size, climatic, and soil conditions further segmented the market.
Jack went back to the drawing board and this time came up with a phased business plan. In the first stage his focus was on stabilizing the Bay Area market and ensuring that he achieved a viable return on his investment.
Once that was done and the cash flow, small though it was, was stable, he could turn his attention to other parts of the state and expanded his website to have different sections dedicated to the specific gardening needs of homeowners in other parts of California. Each part would be defined by climate, soil conditions, and local gardening trends. Obviously this would require substantial investment, but with a stable market share in his Bay Area base, he was able to obtain the financing he needed to implement his phased expansion plan.
In the two years since he began he has been able to profitably expand his operation to 3 other parts of the state. Moreover, with the returns justifying even greater investment, he is now looking to increase the rate of market penetration.
This case underlines the fact that niche marketing is the best option for a small business. The business must continue to grow to survive but this should only be undertaken when the niche market provides a stable base.
Article by Benjamin Roussey