5 Problems With Being a Generalist: Why Niching Down is Critical to Business Success

You can't make everyone happy in life, and you are holding back your full potential if you're still chasing new customer types on a regular basis.

I hate to break it to you, but being a generalist will actually do more harm than good for your business.

And we all probably get this at a philosophical level... doubling down on an ideal customer profile or segment seems to make sense and all the marketing greats tell us to do this ... so what's the real issue that's causing us to relentlessly chase new customer types?

Because we're scared of being wrong.

And of limiting our growth.

We think we can't grow if we don't expand customer types and get broader. Or we think if we double down on a segment and fail, that our teams and friends will laugh at us. And that becomes a bigger problem the bigger the business gets as we're always trying to "feed the beast".

But the problem with not doubling down on a customer type (or at least just a few), is that we're creating major problems in the future.

The 5 problems you're creating by serving too many customer types

1. You won't stand out in a crowded market

Think about suppliers you've bought from. You had plenty of options to choose from of businesses who do the same thing.. so which one were you most attracted to? That's right... the specialist, because they actually stand out.. because you assume they understand your problems and objectives better than the generalist.

2. No customer loyalty

It's tough to get to know your customers on a deeper level when you are trying to serve so many customer types. By not niching down, you are making your team's understanding of your customer shallow and superficial. Customer's who don't feel understood, tend not to stay. Then you end up in an unhealthy cycle where you're replacing your customers every year, rather than building a business where your customers stay and you're building a strong and stable base. Ultimately we all know that it's much cheaper to solve more problems for a customer who already loves what you do, than to find new ones.

3. Lower profitability

Your profitability is going to suck in the future for two reasons if you don't double down. First, if you're spreading your effort across lots of types of customers you'll have higher costs of acquisition because of the loyalty issue above. Second, if you aren't able to deliver to an specialist standard, you can't charge a specialist price. Specialists get to charge premiums because they understand the customer's problems better and have better solutions. That means better margins. Better margins create capacity for more sustainable growth.

4. Weaker brand identity and referrals

When you're a generalist, it's tough to create a strong brand identity that resonates with your ideal customer. That makes it more difficult to build a recognisable and memorable brand which also makes it less likely that people will refer you to others. Think about the people you refer to others... I bet they're usually specialists, because their brand promise is easy to understand. People also tend to know other people like them so you'll leverage their networks more effectively by having a clear niche.

5: An open door for competitors

If you offer 5 different services to 5 types of customers, and your competitor just serves one customer type, they have 5x the time to put into making their service refined and better than yours. Why open the door and make it easy for your competitors to take your customers?

Not convinced? Still scared of doubling down?

Here's 2 Australian examples of businesses that successfully niched down and achieved significant growth as a result.

hiPages

This business was built off the back of supplying leads to tradies from property owners for jobs to be done. They plateaued around 25 million in revenue. Why? They had become too focused on "what" they provided, not "who" they were providing it to. They had become focused on supplying leads, and so built more lead generation directories for completely different customer types. But all of a sudden, their effort was going in a million different directions, costs were duplicating and they lost touch with the issues of their customer.

When they reconnected with the tradie and realised they had lots of other problems they could solve for them, everything changed. They abandoned the other lead directories. They built software for tradies that didn't just receive their leads from hiPages but also managed quoting, invoicing, admin and much more. The business over the next three years grew from $25m to $50m in revenue.

Go1

Go1 started off supplying a number of courses to different customer types. But then decided to double-down on providing training courses that suited corporate clients only. By focusing on this specific niche, they were able to create a unique and effective learning experience that appealed to that specific audience. In 2021, Go1 become a unicorn after a 2.78bn valuation. Go1 started in 2015.

How can you niche down?

So if you're currently trying to serve everyone under the sun, consider narrowing your focus and doubling down on a niche. How do you find a niche? Here's three questions to get you on your way

• Who are your favourite customers to work with? They're usually ones you enjoy working with, they love what you do, are probably the most profitable and you see lots more opportunity to serve them and grow the relationship.
• How many of those kinds of customers are there in the current geographic market you serve? And.. if that number is a little small, how many are there in other global markets you'd consider serving if the opportunity was there (why think only in your own backyard?)
• Is there space for you to become the "go to" provider for that customer type? There might be plenty of competitors serving them, but are there many ONLY serving them? If not, there might be an opportunity for you to take the leading position as the specialist for that customer type.