We build web and mobile applications - that's the generic website tagline 90% of your competitors will have. They all look the same, all talk the same, and are all pitching for the same clients as you are.
"If everybody is doing it one way, there's a good chance you can find your niche by going exactly in the opposite direction" ― Sam Walton, entrepreneur and founder of Walmart
A niche is a "specialised segment of the market for a particular kind of product or service", and when applied to software agencies, it means you don't just specialise in "web and mobile applications" like the rest, but instead you carve out a specific focus area. A focus area that your agency becomes an authority in, allowing you to provide deep value to your clients, and in turn charge a premium for your specialised expertise.
For your small software agency to punch above its weight and deliver high quality work, I believe focusing on a niche is a superpower to get you there faster.
Why should software agencies focus on a niche?
1. Increased authority 📢
Authority is key to attracting clients and showing your competency in your field, but unfortunately gaining authority is especially challenging when just starting out. How can you build authority in a specific area when your first few projects are all so vastly different? An API integration for an old eLearning platform, a mobile app to track walking your dog, and a community website for financial advisors to exchange ideas - what area are you an authority in? Of course you can highlight your "high quality" or your "cheaper rates" - and this is what the other 90% do. But what if instead of your website tagline being "We build web and mobile applications" it said "Experts in delivering internal business software" or instead of "Technology specialists" it said "Specialists in building mobile apps for your startup". A clearer value proposition for potential clients that succinctly captures what you do best, and what niche you play in.
It's obviously more than just your website tagline, but if your entire website is focused on the single specific problem you solve, it makes the sale a lot easier. Say potential client lands on your site, they can see right off the bat that you not only specialise in mobile apps, but more specifically, you focus on startups just like them. This draws them in, and as they scroll down they see some images of startup apps you have delivered along with positive testimonials from founders just like them. They call your phone number, and your conversation with them continues to reinforce your experience and authority with working for people just like them. You now stand out from the rest, your agency has increased authority in the eyes of the buyer, and that gives you a competitive edge.
2. Reduced competition 🏆
If you're the only software agency in your city, then you are one lucky bastard. But unfortunately I don't think you will be. Your small agency will most likely be one of many around your geographical area, along with the hundreds of freelance software developers that are looking for work. Besides the physical world there are also the millions of competitors on the internet, and as business being conducted fully online is becoming more and more normal, remote competitors is a bigger consideration.
You already know all this, and it's a big reason why starting is scary - but you don't have to run the same race as all those competitors. You can instead run your own race, and separate yourself from the pack by targeting a specific subset of clients, and by solving a specific subset of problems. If you were to specialise in "web and mobile apps" then you have twice the competition as those that specialise in just "mobile apps". If you niched down even further and focused on "mobile apps for startups" your competition is reduced even further, or "mobile apps for financial startups" even further still. In such a competitive space as software development, reducing competition is huge.
3. Laser focus 🔍
Don't be misled by the "small" in small business, there will be a very gigantic number of priorities competing for your attention. On top of the normal business owner things, you may be getting familiar with how "Karate competition scoring" works for a project you are about to start, grappling with submitting a React native mobile app to all the different app stores, all whilst researching how blockchain works for an upcoming project your pitching for. Focusing on one niche can help you regain some control and realise projects that are not aligned with your niche are really just distractions. You realise the blockchain project is actually not an area you want to work in - and that's good, you can't be an expert in everything, and your clients deserve an expert.
Minimising distractions allows a laser focus on what is really important. Focus on having a concise and memorable sales experience demonstrating your niche authority, focus on gaining even deeper experience in your niche, focus on delivering amazing projects in your niche (and possibly writing great content on your niche), focus on training your staff in your niche - all of this could be more valuable than researching blockchain for a project that doesn't align with the work you want to focus on.
4. Depth of experience 👨🏫
You may not be an expert from the first day you start your agency, but to separate yourself from the generic masses you should aim to become one as fast you can. Being able to provide you clients with deep, expert experience in their problem area is one of the biggest differentiators out there. And it will open up far more doors than any well-crafted website tagline ever can. Experience compounds, and if you concentrate on a niche, you will win more projects in that niche, allowing you to become an expert quicker than if you take every project that pops its head up. As your experience in your niche deepens you become even more valuable to your clients - and this is what can take you from being viewed as just a "dev shop" to being viewed as a high value partner.
"No one achieves greatness by becoming a generalist. You don't hone a skill by diluting your attention to its development. The only way to get to the next level is focus" ― John C. Maxwell
At the end of the day a dev shop and a high value partner are both just delivering client services, however it's deep expertise and knowledge which is the true value to the client, and is what will allow you cross that chasm into becoming an indispensable technology partner.
5. Expert rates 💵
Unfortunately it's common for agencies to use the "race to the bottom" pricing strategy, which is basically who can do it the cheapest (especially common with outsourced dev shops). There may be a time where you price as low as you can just to win a project (especially when starting out), but then move as fast as you can to charging what you are really worth. Separate yourself from the cheaper crowd, and instead aim for the exclusive expert crowd. Obviously this is the dream right? No one wants to be viewed as cheap, but how do you compete with those that charge $7 per hour? Charging what you're worth is tied to being seen as an expert. Experts charge a premium because they know more than the others (or appear to know more). Experts have the deep experience gained from fighting many battles in the trenches, and it's that experience the clients pay for. Having a niche will allow you focus on gaining deeper experience, which will in turn help you charge more, which in turn will make life a lot easier.
Possible negatives of niche?
Being pigeonholed 🐦
Being known as the company that "just does X" could leave you feeling trapped, especially if "X" is not truly something you want to do - or there are not enough clients that actually want "X". To mitigate this it is important to discover a niche area that is at the intersection of
- Something you are interested in and want to do
- Something you are experienced in (or can gain experience in)
- Something that the market wants (that people will pay for)
Without any of these your niche may feel more like a pigeonhole.
Reduced market 📈
If a pie represents "all possible clients that want custom software", then yes, your niche is a reduced portion of that pie. That's a fact. The total possible market for custom software is no longer your target market, and this a bi-product of niching down. However with the right niche this is not a negative thing, as a small company cannot waste time talking with thousands of potential clients that ultimately choose another agency. A small software agency doesn't need or want thousands of customers like a $5 per month SaaS app does. You want a small group of quality clients who respect you and value your work (that's the goal). There is plenty of work out there for everyone, and as long as you don't pick too small a niche, then a smaller market is not a bad thing.
The expert barrier 🚧
How does your agency become an expert in anything if you are just starting out? This is the chicken or the egg problem, you cannot become the industry leading expert if you don't get the experience. This is a common barrier of entry when deciding on whether to focus or remain a generalist - but every expert had to start somewhere.
My advice is: As honestly as you can, "fake it till you make it". I am not telling you to lie about being specialist in something you have no experience in (but I also don't think you should choose a niche you have zero experience in), I am saying to creatively highlight the experience you DO have - no matter how limited - and focus communicating the benefits of what you can do with that experience. This is sales, and oftentimes you need to sell where you want to be as opposed to where you are right now tomorrow. I would also recommend immersing yourself in your niche. Read all you can, talk to as many people as you can, and ask all the questions you can. You need to be pro-active to become an expert, and the knowledge that you gain today will compound as your expertise grows.
Niche regret 😔
Ok but what do you do if you have tried everything and the niche you focused on is just not working? You've spent all this time crafting your agency as the "Experts in Blah Blah Blah", do you just write it off as a sunk cost? Not to mention - what will your clients think? First of all, your learnings are not a sunk cost. These types of experiences are indispensable and cannot truly be learnt without having gone through it. Don't stress about changing your niche, in the startup world this is called a pivot, and has famously been responsible for some of the biggest companies (did you know the multi-billion dollar communications company Slack started as an interactive game?).
The only thing I would advise is not switch your niche at the drop of a hat. Think about it. But when you are certain that a niche is not for you, then don't have regrets and move on. It's not a failure, there are plenty more niches in the sea. If you already have a number of established clients in your niche, you don't need to fire them if you change your niche (unless of course you want to) - and you don't need to completely abandon your first niche. Having more than one niche whilst being careful not to fully divide your focus, can work out great. Just make sure your value offering is still clear and not confusing to potential clients. This was similar to my experience, we changed niches after a while, and whilst we would still work with the previous clients in the original niche - our website, communications, and focus was on our new niche.
My experience with agency niches 📔
Before starting my agency, my co-founder and I had previously been involved in startups. The year prior my startup had been through an accelerator program, and I had just recently returned from San Francisco before I started freelancing. When we decided to start an agency it was an easy decision for us to focus on startups as a niche. More specifically, we chose to focus on working with early-stage startups to develop their first MVP (minimum viable product) around a price point we felt was competitive enough to get us off the ground as a business - but profitable enough to not feel like we were selling our souls.
We already had connections in the startup ecosystem so we reached out to as many people as we could. We had targeted our websites communication to reflect our focus, and offered some productised services such as a "full day MVP roadmap workshop' for a once-off price. This worked well, we got our first handful of clients and our first real taste of agency experience. After a while we began to find many clients didn't provided ongoing work, and some we never hear from after the project delivery. This was because many of them fizzled out as they failed to find product/market fit fast enough, or failed to raise money We realised whilst the MVP's for startups niche worked great to get things up and running, we believed a different niche would need to be incorporated in order to really move things forward.
Around the same time someone I had worked with many years prior reached out. They knew we focused on startups, but wondered if we would want to help out their medium sized boring business on a large software project to automate their internal workflow practises. This interested us, so we put together a proposal, and won the project. Not only was it a success, but found we really enjoyed getting to know how their specific business and its industry functioned. Helping this business improve their existing internal process gave us more enjoyment than building the next startup idea (Facebook for Dogs?) - and it turned out to be a perfect juncture for us to explore another niche, internal software for business automation. This niche had the added benefit of serving businesses who had been around for a while and made money - unlike those fresh-faced startups (no offence startups!). We soon decided to move our focus from "MVP's for startups" to "internal business software (for boring businesses)". This niche was still pretty broad, and looking back I think we could have focused event deeper (a few years later we ultimately ended up focusing only on a few key industries). Whilst we still would do startup work if the right project came along, we updated our websites communication to reflect this new niche. We started to actively target medium sized un-sexy businesses, and specifically started to blog about concepts such as "Business process automation" and "Legacy system rebuilds". We eventually started to win more work in the niche, and in turn gained deeper expertise. Word-of-mouth introductions from important clients started to play a larger role as our authority grew. This niche proved much more successful than our original - but we needed the experience of our first niche to really get experience running an agency.
Whilst we found our first niche due to industry experience, our second niche found us - and we were lucky it found us at the right time when we were open to receive it.
Some possible software agency niches 🗂
For your software agency there are two real categories of niches:
- Industry niches - e.g. the legal industry, where you focus on clients in the same industry.
- Project type niches - e.g. "legacy software rebuilds", where you focus on clients that have the same type of project they need delivered.
Some examples of industry niches are:
- Real estate
Some example project type niches are:
- APIs / Integrations
- Data transformation
- Desktop software (too broad by itself)
- Ecommerce software
- Internal business software (broad)
- Legacy system rebuilds
- Mobile apps (too broad by itself)
- Realtime communication
- Scheduling software
- Startup MVPs
- Survey / Questionnaire software
- Websites (too broad by itself)
I have flagged some examples as "too broad by itself" as I feel a niche of "Websites" is not focused enough in this day and age - however if you combine it with an industry niche such as "Financial Websites" or "Mobile apps for the legal industry" then it becomes more focused.
How to find a niche that could work for your agency 🧐
A niche exists whether you find it or not. You can't invent a niche, they exist in the ether waiting for someone to fill them. So how can you fill them?
- Be pro-active and try to discover niches
- Be open to a "niche finding you"
For the best chance of success you should practise both of these.
"You gotta keep trying to find your niche and trying to fit into whatever slot that's left for you" ― Dolly Parton
To be pro-active you should think of niche's you already have some experience in, and importantly, that you can also imagine enjoying working in. I for one was never purely in this business just for the money - I also needed to have passion for my work and clients in order to get out of bed in the morning, so that is the advice I would give.
To brainstorm you can run an easy discovery process, listing down the answers to the following questions so you can collate and cross reference the results:
- What industries do you already have experience in?
- What industries do you already have knowledge about?
- What industries are you interested in (and could imagine working on daily)?
- What types of projects are you experienced in delivering?
- What types of projects do you have the skills to deliver?
- What types of projects do you enjoy working on (and could imagine working on daily)?
Thinking about possible niches is the easy part, but trying to validate whether a niche has actual paying customers is trickier, but an important step that you shouldn't ignore. If you're lucky you may already have "insider knowledge" in an industry that helps you know there is a market there, or like my experience with "MVP's for startups" you may have a pool of contacts you know have a problem they would pay to solve. But often you don't have these insights beforehand, and instead need to do some research and validation to validate there is a market out there.
One way to gain insight into a niche market is by looking for possible competition. As a starting point I recommend using our old friend Google, and try and find competitors in your niche, e.g. find other agencies that do "Mobile apps for the healthcare industry". This will help you understand it's a crowded space, or if there seem to be little or no competitors. Too crowded means you may want to get more specific with your niche, and no competition at all most likely means there is no market for it. As a rough guideline: Some competitors good, many competitors bad.
Some other methods of validations are conducting Keyword research (are people ever searching for "Developers for healthcare mobile apps" etc.) and also Setting up niche landing pages to (can you drive traffic to a very specific page to validate your concept).
"Look, all you can do when you find your niche is go with it" ― Vincent D'Onofrio, Actor
I was lucky with my second niche as it found us, and this is also a common way of niche discovery. Be open detecting a niche has presented itself, realise it is could work for you, and then double-down your focus on it. This is one benefit of starting your agency more generalist and taking on wide variety of projects - but always being on the lookout for a niche candidate. This can also make the validation easier, as often it is a client that shows you the niche exists (by paying you!).
If you have any thoughts, feedback, or questions (around niches or anything else!) I would love to hear from you. Please hit me up on Twitter @chrisrickard