This is Local Legends — Small Business, Big Impact 🏆

Local Legends is deep dive into the craft of building enduring small businesses.

Here, I share insights on constructing a business that's not just built for the short term, but soulfully crafted to withstand the test of time — and why that matters if you want to make an impact in your own entrepreneurial journey. Thanks for subscribing.

Welcome to the first installment of Local Legends! Last month, I led a session at HoldCoConf on Niche Businesses.

The discussion from that session inspired this post, which I’m calling:

Unlocking the Potential of Niche Businesses: Part One

Part two will publish next week. I look forward to reader feedback, which is always welcome. Just hit reply.

- Chase Murdock

IN TODAY’S EMAIL:

Unlocking the Potential of Niche Businesses: Part One

In my debut article on Local Legends, I delve into my passion for niche businesses, aiming to provide you with the tools to distinguish the gems from the duds in small business.

At Decada, we've looked at numerous businesses to acquire, and my personal favorites are those charmingly "nichey" ones, which are often overlooked.

In the realm of mergers and acquisitions, there’s a fitting analogy to a racetrack. When you embark on acquiring or starting a business, you're effectively placing three bets in one:

Today, my focus is squarely on the race track: the battleground you choose to fight on. Choosing your battleground —your market and industry— is perhaps the most important decision you make when you choose to start or acquire a business.

In this essay, I make the case for why you might consider a niche business as the right battleground.

Buying a business on the wrong race track is the surest path to failure. Personally guarantee some debt to buy it, and it could be your path to bankruptcy.

But buying into the right market and industry? Entrepreneurship on easy mode.

Let’s break it down.

What Defines a Niche Business?

Early in my career, my focus was on finding a business with a large market and unlimited potential.

These can be good businesses, but there’s a tradeoff to that upside:

Overall, these businesses come with higher stakes. You can win in this game, but the odds are not in your favor.

A niche business is one with a more limited addressable market, but a key differentiator that allows it to earn in an outsized way.

There are multiple ways niche businesses can thrive.

Some earn in an outsized way as a result of a geographic moat. Others have significant pricing power because they are so good at what they do, and do it in a relatively small market. And some niche businesses operate in forgotten corners of a supply chain that its customers almost seem to forget they’re there, paying invoice after invoice — even during a recession.

In the expansive terrain of today's economy, some businesses are easy to miss.

Here are 5 categories of niche businesses to look for:

1. Shovel Sellers

These are the businesses behind the scenes, deep in a supply chain, supplying parts to the supplier who supplies the end-consumer.

💡 Think airplane parts manufacturers, or a dumpster leasing business that sells to construction companies.

2. Behind-the-Scenes Powerhouses

These are the infrastructure providers or the invisible hands of our community. You might not see them, but you'd miss them if they were gone.

💡 Think car washes. Or a friend of mine whose business places and services vending machines to universities, airports, and hospitals.

3. Steady Eddies

These are the boring businesses, regulatory navigators, and recession resilients — where reliability is their hallmark. Through booms and busts, they're the stable force in a turbulent economy.

💡 Think electrical contractors, or an appliance repair company.

4. Solution Specialists

These businesses are the problem solvers, middlemen magicians, and safety nets. They step in when there's a gap or a need, providing expertise, efficiency, or security.

💡 Think: Outpatient mental health providers, mediation service providers, or one of my friend’s businesses that is a nurse staffing company in rural Texas. Talk about niche.

5. Artisan Craft Purveyors

These businesses are the makers of the unique and handcrafted. They specialize in products made with skill, dedication, and a personal touch.

💡 Think ceramics studios, custom tailored suiting, and high-end hat making. They charge a price premium for a craft they deliver on.

The essence of a niche business lies in its specialization. 

While they may lack the broad customer base of a corporate giant, they make up for it in depth of service.

Niche businesses cater to a small market, and as a result they have minimal completion, allowing them to charge a price premium.

They run on smaller volumes, but fatter margins.

Part Two: Unlocking Profits in a Niche Business

The saying "riches are in the niches" rings true, and I've seen it firsthand. Read Part Two to see why.