Regardless of whether there is a crisis or not, there are some fundamental rules for being in a niche that will give you the absolute best results.
Many people will advise you to follow your passion, and while that can be great advice and seems like it would be enjoyable, if your passion doesn’t make any money or leads you to bankruptcy, your hobby could quickly feel very unfilling.
It’s always worth checking if your passion aligns with good business sense. If it does great, but if not then you might want to reconsider your direction or see if there’s a way you can adjust.
For example, your passion could be Real Estate and selling expensive properties, but if the market goes south and few people are buying properties, then you might need to pivot. You could instead focus more on the rental market, more on homes with high security, offer live online viewings, and provide online training on the best options for struggling homeowners. I know very little about the real estate market… but you get the idea to be creative.
7 Factors of a Winning Industry, Even During a Crisis
I have 7 criteria that I use to decide if a specific industry or business model is worth getting involved with. If you can hit all 7 criteria then you have big potential on your hands, but even hitting just 5 or 6 can make a big difference to your success.
Here they are…
- High Customer Value – typically it’s easier for the regular entrepreneur to make more money when the value of their customers is higher. For example, if you sell plastic cable ties and the main differentiator is price, and as a result your profit margins are low, then you have to sell a HUGE amount to make a lot of money. However, if you sell a high-profit $5000 service to a business then you don’t need many of those to make good money.
- High Demand – This is fairly obvious but the higher the demand the better. If there’s little or no demand then you will probably have a problem.
- Huge Passion or Burning Problem – If it solves a painful problem or your audience shares a huge passion for the product or industry, then it makes getting sales a lot easier.
- Large Variety of Products/Services – You don’t hear this mentioned often, but it’s critical to growth and stability. If you can only offer one key product line then you are limited. If you get competition or growth stalls, you have little room for manoeuvre. However, when your target market is interested in a lot of different products and services you have more room to manoeuvre. You can offer upsells and cross-sell other products, focus on more popular, low competition or growing product categories as the times change, and even sell some products at a very low price just to gain a customer into your sales funnel.
- Low Competition – The less competition the easier your life will be as ultimately competition serves to lower your profit margins over time, and makes you work harder to have an advantage over the competition.
- Repeat Purchases – If the products or services in your industry are typically repeating purchases or subscriptions then your customer value will be a lot higher, and your revenues a lot more predictable. This also includes products where people need to buy more of something to keep using the product, such as ink cartridges for printers.
- Growth Industry – Probably the pinnacle of all these 7 factors is being in a growth industry. This means with all things being equal, by just being in the industry your sales should grow by riding the wave of growth in the industry, even if you are just average. If you are good you will grow even quicker. The downside can be that technology and products change quickly, but that can also be a positive as it allows you to sell more. True growth industries continue to grow even during declines. Think of radio in the 20s, TV in the 60s, internet in the 90s, and digital marketing and A.I. today. The earlier you are in this industry the better.
An example of a business that hits all 7 criteria is digital marketing, which is the industry I am in, as well as many of our AmpiFire users who resell the service to businesses.
- It has a high customer value with marketing services often costing over $10,000 per year.
- It is in high demand… billions are spent in this industry every year, and there are millions of businesses that need effective ways to get more customers.
- The agencies that use us have a huge passion for marketing and the businesses that benefit from the extra traffic have a burning problem of needing more exposure and customers.
- There are many products and services that can be sold in the digital marketing space, from consulting, different types of advertising, to content production and software. This gives us a lot of flexibility in our direction over time.
- Competition is there, but ultimately business will buy as much traffic or marketing that can make them a profit, so if you can deliver clear results and explain it in a way businesses can understand, then competition in that respect is low.
- Repeat purchases are the norm as businesses need to continue to do more marketing to continue to get more customers
- It’s a rapidly growing industry as more and more people go online, shop online, and more businesses invest in online advertising as it’s more targeted and effective than traditional advertising. This trend has been in place for years and is still ongoing, and because technology changes quickly, there’s a continuing need for up to date digital marketing services.
How many of these factors does your own business hit?
If you are hitting most of these including being in a growth industry then you should get through the economic decline in good condition, and maybe even grow.
However, if you are not measuring up well against these factors then you will need to prepare. These factors work in the opposite way too so if, for example, your industry is declining and your competition is huge, then you are likely in trouble. You will need to pivot your business or maybe even see the writing on the wall and change your industry entirely.
Whereas if your industry is just steady (neither growing or declining), and competition is average, then you have less to be concerned about even if you are not in the most optimal industry.
Obviously this is all very subjective, but by doing some research and at least considering these criteria it helps you make better decisions.
Regardless, it’s quite clear that being in a growth industry is a critical factor in surviving a crisis and potentially even ending up in a better position!
Also remember that things change over time, and your once great industry, might not stay that way.
Going from Great to Bad – Real Estate Example
During a crisis several of these factors can go from positive to negative… let’s take a look at what happened to real estate in the banking crisis…
- Customer value went down as property prices dropped
- Demand went down as fewer people wanted to buy
- The interest and passion for real estate dissipated as it became less profitable
- Competition increased as more properties went on the market
- What was a growth industry became a declining industry (a victim of cyclical or fake growth)
Real Estate went from being a great industry making more money year on year, to a terrible industry where many people went bankrupt.
You can see how a crisis can drastically change how an industry holds up against these criteria, so you should always ask yourself what changes in future could happen and will your industry do okay during economic declines Because economic declines are guaranteed to hit at some point and it could be at any time.
It’s fairly obvious that real estate doesn’t always fare well through economic troubles. Sometimes it does, but other times it doesn’t, and it is arguably a victim of ‘fake growth’ because the industry was prodded up by cheap loans, financial wizardry and over-optimism in continued growth.
People were buying houses because they believed the value would keep going up and they had access to cheap loans. While that might be true if the population is perpetually increasing and the available properties are limited, but that’s not 100% true. Even if it were, the prices were going up faster than could be explained by that intrinsic demand.
A similar thing happened during the dotcom bubble… the internet was a growing industry, but there was an over-investment which was not supported by the actual revenue being generated.
Over-optimism and expected continual growth that is not backed up by intrinsic profits is a warning signal. The real estate boom and the dotcom bubble had something in common…
The current profits did not support the growth. Rental income from properties did not support the big increases in property prices., nor did the income from early dotcom startups (most of which were losing money). Yet the values kept on going up because people believed they would be worth more in future.
Beliefs don’t pay the bills. This sort of growth rarely survives an economic decline and is often a cause of that decline as that bubble corrects itself.
Compare that to the growth in digital marketing in comparison. People are buying digital marketing because it’s more effective than traditional advertising, they are buying because they get a benefit now, not a potential benefit in the future like with real estate. Also the amount of revenue and profits being generated in this industry keeps going up while traditional advertising keeps going down so it is more clearly based on something real. Not over-optimism.
Now let’s take a look at this industry in greater depth, and more specifically digital marketing for small businesses.