A good way to understand what exactly is a niche is to ask if people inside that niche know each other or not.
For example, legal is a niche because lawyers or law firms may know other firms. They may have industry events that connect them or lobbies to vie for their interests. But “professional services firms” is not a niche because people inside that category don’t necessarily know each other – it subsumes accounting, legal, finance, and so many other niches.
If you call yourself a “Software Development Firm for Legal”, people inside the niche can refer you to each other. Your name will get thrown around in discussions. But if you call yourself a “Software Development Firm for Professional Services Firms”, then no one can truly identify with you.
The same thing happens when you say, “We serve SMBs” or “We serve enterprises”. A category is not a niche. No real small business thinks of itself as a small business. Enterprises may call themselves enterprise just because of their regulatory requirements but they are much more likely to identify with something more concrete, for example, OTT, Healthcare, Retail etc. (btw, retail itself is a category which is generally not a niche but in the case of enterprises maybe).
A great filter is to just ask: Is the audience group I’m defining know each other?
If not, you’re not targeting a niche and won’t see the compounding benefits of being in one.
If a business starts out serving Legal and after a certain threshold of success, branches out into serving Accounting firms (in order to diversify or to exploit some market opportunity), chunks of their marketing collateral (for example, their home page) may refer to the fact that they serve Professional Services Firms (i.e. the category).
Their content, outreach and in general, anything that is not a website or a “company profile” artefact, can still exist in two variants: Legal AND Accounting. On a youtube podcast, the founders may say they serve PSFs but that does not mean their niche exists at category-level. Instead, their business is merely collection of adjacent market-level niches, a perfectly reasonable thing to do given you possess the right maturity.
In fact, this is why categories are even created, for convenience, not targetting/bizdev. Or maybe to fool new founders into thinking they can target entire categories and derail them for a few years.
Consolidation is a very tricky play and is often misunderstood. An analogy by SaaS would help:
In the SaaS world, vertical expansion is basically going ‘multi-product’. For example, HubSpot going from Marketing Software to CRM. If you go multi-product too soon, you risk diluting all your products. If you go multi-product too late, you risk being so entrenched in the market that no new offering you release finds any footing.
The methodology commonly followed in the SaaS world to de-risk the timing issues is to launch every product as a completely separate offering. Almost a completely new business; the release is often controlled in a closed community or existing customers and then let out for a little ‘cold validation’ before the team considers consolidation with existing product line or launch as separate business.
You can see how this also applies to services expansion. The mistake most people make is that they assume the expansion happens top-down, i.e., the new service line necessarily has to emanate from the parent business. That risks diluting both services.
In reality, the most optimal positioning may be two businesses, one for legal and one for accounting, with a loose connection (at least in its digital form). Siemens used to do it before they expanded so much that it made more sense to have regional distinctions than by service lines.
In fact, this is why categories are even created, for convenience, not targetting/bizdev. Or maybe to fool new founders into thinking they can target entire categories and derail them for a few years.
LOL
This is exactly why I dislike home pages that tend to target the ‘broad category’. They end up speaking to no one and in nearly all the cases I’ve seen, only make sense when the home page is not expected to do the work. As long as you are reliant on your digital efforts for growth, any dilution in positioning hurts. There has to be a very strong business case before you consider broadening the category on the homepage (see FletchPMM’s posts on this topic btw).