Following your passion & Choosing niches

Is following your passion really such a good idea? It's advice that's frequently offered to people thinking about starting their own business. Two articles from the business section today's Vancouver Sun newspaper provide some helpful and cautionary lessons for those who are considering that advice.

One person started a chain of low-carb foodstores in and around Vancouver, riding the wave of popularity that arose around 2004 when Atkins Diet emerged from many years of fringe obscurity. She had lost weight herself following Atkins, and wanted to share that success with a broader public. She mortgaged her house, raised investment money from friends and family ($200,000, the article said), and opened four retail stores selling low-carb products. For a while, business was good. At the height, she was grossing $150,000 a month.

Unfortunately, the Atkins Diet craze peaked and then crashed. The business owner had to close her stores one by one, and at the end had to break the lease on her main store. She ended up in court, being sued by creditors for tens of thousands of dollars.

The other fellow is at an earlier stage in his venture. He's a cook with an interest in sailing: he's interested in catching real waves. As the article tells his story, it's a classic case: Someone with a passion sees a need and sets out to find a customer. In this case, he started small. After developing his business plan, he started walking the docks and talking to yacht owners who were interested in gourmet-level meals on board. After all, you don't have a business if you can't find customers. He's won an entrepreneur of the year award, so one might assume that he's probably doing alright on the business side, though the article didn't really say.

The two businesses are dissimilar enough (as to length of time in business, type of business, customer base and so on) that we have to exercise caution inat comparisons we make, but a few points deserve comment:

• Is your choice of business model appropriate? Could the low-carb owner have foreseen the difficulties she would run into? In opening her four stores, the low-carb owner attempted to adopt the Amazon / E-Bay model: go big or go home. To do so, she had to raise a lot of money, and it only got her four stores in and around Vancouver. Yet she was up against the Save-On Foods and Safeways of the world, who already had a distribution network, established relationships with suppliers of the low-carb products, and far deeper pockets. In addition, she may have chosen a different route if she had considered the psychology of her customers and how difficult it is to change eating patterns for a sizeable portion of the population over the longer term.

• Understand your business. Both businesses found customers. The trouble for the low-carb owner arose when her customers and their food passion moved and her passion didn't. She was locked into her locations, both with investment capital, and what she had spent the money on: inventory and retail premises. Retail, particularly retail food, is a tough business, requiring large capital outlays, and possessing small margins. By contrast, the sailboat gourmet is running a service business. He's selling to a long-established and easy-to-identify group of people: those who own or rent yachts and want high quality food for their voyages. Both are areas where people won't be changing their preferences any time soon: there will always be yachters, and they'll always need to eat while they're out yachting.

• Specialization may not save you.Both businesses focused on a particular niche. For those of us in small business, that's a wise strategy. Yet, as the low-carb example shows, those who live by the niche can die by the niche. "Climate change" happens in the business world just as much as in the physical world. How will you adapt if the business climate favouring your niche changes? One way to protect yourself here is, when choosing your niche, pay attention to what's already being done in that area of business (or a similar area, if you're one of the rare birds actually doing something truly new). Find out how your predecessors have managed to survive; the fact of their survival itself provides valuable guidance about the strategies and practices that you will need to adopt if you are going to survive in your niche.

• Go where the money is. I first learned this point from Fred Picker, the founder of Zone VI Studios, which focused on large-format photography in the Ansel Adams tradition. (Mr. Picker died in about 2000.  Calumet Photographic bought his company before he died.) You'll sell more, and at higher prices, to those who can afford to pay. Fish where the fish are. That someone owns a yacht is often a good -- though not infallible! -- sign that a person can afford to pay for your services. People going on yachts are looking for a good time, a vacation, something out of the ordinary; their purse strings will be looser than usual. By contrast, many grocery shoppers are dealing with day-to-day necessities. They tend to look for bargains.

• Find your customers.It's a point that bears repeating. Forget about your capital, forget about your business plan, forget about doing all those things that the business start-up books tell you are good things to do: you don't have a business until you've found your first sale, and then the next, and the next.... What I like about the yacht gourmand is that he just got out there, where his customers were and started knocking on doors. Not every business can make that model work. But for a lot of service businesses, it's a technique to remember and use.