How to grow and exploit a niche market?

In a previous post, we wrote about “how to create a niche market?” In the present post, we address the question: “once you find a niche; how can a company make sure it is ready to grow and expand along with it?”, and ideally turn into an international niche market leader (INML).

Spotting a niche does not automatically mean a company is headed for stellar growth: some niches grow slow, others grow fast, and some remain small forever.

In the event that a company “bumps into” a niche that has growth potential -and in order to be meaningful in the business it represents- the company in question needs to keep up with the pace of the market. This implies willingness and capacity to grow on its behalf.

Now, not all companies that find themselves in such a situation are actually willing and/or able to do that. While this may sound counter-intuitive, if new business opportunities are too distant from a company’s core business or if its growth rate crowds out resources required for its ‘cash cow business’; companies may decide to not pursue such high growth business opportunities.

While (high) growth always has a potentially disruptive dimension to it, it does not mean that a company will ‘run riot’ if it bets on high growth.

Rather, this tends to be a question of a company’s ability to assess the magnitude of growth correctly, and to canalize and accommodate it via an adjusted organizational design and a ditto mobilization and structuring of (human and other) resources.

Growth is, therefore, a tricky thing. On the one hand, there are companies that prepare for growth, while the expected growth never takes off, leaving an oversized company structure behind prone for bankruptcy. On the other hand, there are companies that let the train of growth opportunity pass by as they prefer to stick to business as usual. Among the latter, one can find cases where vested interests deny a going after new business opportunities.

In all circumstances; right sizing and a correct organizational design to nurture growth and grow along with demand evolutions is key.

While configuring organizational structures has a lot of facets to it, one commonality that seems to stand out when existing companies run into a niche market opportunity with high growth potential, is that friction may arise between proponents of standing business and those in favour of pursuing new market opportunities. All the more so, if the new opportunity is perceived by the inner circle as only loosely related to the company’s core business c.q. raison d’être.  In discussions over allocation of resources, company priorities, and product-market combinations to be pursued; the powers that be (or a simple majority) may then count with such an overweight that this can imply killing off such new initiatives.

As a consequence, in order to exploit a new business niche, our INML research has uncovered many cases where companies turn to the creation of “skunk works” –detached business units that are granted considerable freedom- or spin-offs. A third way is to acquire a third party and use it as the spearhead to move into new market terrain; to inject vital competences into the acquirer’s organization; and/or to give a strong signal internally that the acquiring company is committed to move into new territory (and that way lowering the resistance against such reorientations).

Similarly, our INML research revealed how quite some international niche market leaders are companies whose leading persons stepped out of larger corporations acting in the same branch as their current ventures. As these persons did not get the room or endorsement to move into new unexploited market space, they decided to set up a business of their own.

Existing companies that want to avoid the latter scenario, should consequently be sensible to intrapreneurship aspirations of growth- and opportunity-oriented staff members. At the same time, they should surveil that stand-alone constructions do not drift off too much or that they do not generate spill-over effects for the remainder of the company.

 

Bart Kamp

Bart Kamp es responsable del área de Estrategia de Orkestra y profesor de gestión estratégica de nuevas empresas en Université Catholique de Louvain-la-Neuve (universidad católica de Lovaina) en Bélgica. A lo largo de su trayectoria profesional investigado en áreas como las políticas de innovación, la competitividad industrial, el clima de inversión (extranjero), las políticas de transporte e infraestructuras y otras cuestiones de desarrollo regional para varias instituciones multilaterales –como la Comisión Europea– y organizaciones gubernamentales y multinacionales de Bélgica, Países Bajos, Luxemburgo, Alemania, Francia, Portugal, España, Rumania y Lituania. Cuenta con una amplia experiencia en diseñar y dirigir procesos de evaluación de criterios múltiples, análisis de costo-beneficio, evaluaciones de impacto y análisis de redes en relación con medidas de política estratégica y proyectos de inversión empresarial.

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