As seen in 914INC
By David Levine
Business axiom No. 1 says that the customer is always right — which is never more true than when customers tell you they need something but can’t find it anywhere. That’s the a-ha moment, the big bang of a new, niche marketplace.
For Matt Schulman, that moment occurred while he toiled as a salesperson for a big beer distributor. A supplier mentioned his unhappiness with how distributors were handling his smaller, craft-beer accounts. “There’s a need for a smaller company,” he told Schulman. “You should start one.”
Harold Brand has had two such moments. While running a technology-marketing company in 1990, a client asked about something new, called bar codes. “It wasn’t on our radar at all,” Brand says. He developed a bar-coding product; it worked, and they discovered that “thousands and thousands of companies needed this.” Fast-forward about 10 years, when customers asked about another new need: radio-frequency identification (RFID) chips. “They told us: ‘You’re the experts in bar coding, so obviously you are also experts in RFID,” Brand says. They weren’t. Yet.
Jeffrey Hermann’s big bang took place in his bathroom. A friend asked for an aspirin, and upon opening Hermann’s medicine cabinet, commented, “It looks like a pharmacy in here.” It would be nice if there were some way to keep medications private, Hermann thought, because, “People have been snooping in medicine cabinets for a hundred years.” More recently, spurred by the epidemic of prescription opioid addiction in this country, he realized security was even more vital than privacy.
These three Westchester entrepreneurs, and many more like them locally, discovered a niche, a hole in the marketplace in need of a product or service that didn’t quite exist. They aren’t just building a better mousetrap. They are discovering an entirely new species and trapping that.
Phil Thorp, a counselor at SCORE Westchester, the national small-business consulting and mentoring nonprofit, defines a niche company as “having something that competitors don’t have, anything that has a unique customer set or that differentiates you from your competitors.” Of course, every business thinks it is different from its competitors — Joe’s Pizza, Joe will tell you, is nothing like Anthony’s Pizza — but that’s not always true. “The first thing we ask people who come in here is, ‘Do you have a niche?’” Thorp says.
Schulman initially laughed when first encouraged to start his own beer-distribution company. “I thought he said it in jest,” he says, “but it planted a seed.” He and his brother, Eric, both worked in the beer business and, being in their 20s, were fluent in the burgeoning craft-beer scene. But the distributors they worked with weren’t. “They were too busy selling brands like Miller or Coors or Budweiser, and it’s hard for smaller brewers to grab their attention when they are selling millions of cases of Corona,” Schulman says.
When he was passed over for a promotion in 2013, he decided to act. He recruited his brother, his cousin, and his best friend from college, and together they formed Sarene Craft Beer Distributors, which was located in New Rochelle until relocating to the Bronx in the fall, due to their growing business’s need for more space.
They put their own money in and got a loan from the Small Business Administration. That can be difficult for any new small business, especially one in an untested market. “But we checked all their boxes,” Schulman says. They were experts in their niche, passionate about their product and had some skin in the game, making them a good risk.
Hermann, founder and CEO of Solo Technology Holdings, in Purchase, has 30 years’ business experience in software and telecommunications. He envisioned a product, now called iKeyp, which is a personal safe that installs easily into a medicine cabinet (or elsewhere) and connects to the Internet, to provide owners with real-time security alerts, as well as medication reminders. He convinced his friend Mitch Danzig to leave a finance position at Deutsche Bank to become president and COO. “I didn’t know the extent of the opioid epidemic, and I fell in love with the idea,” Danzig says. “The only thing out there was a product that was not smart, not secure, not the deterrent I would want with a teenage child.”
For his part, Brand transformed his Yonkers-based technology-marketing company, Cybra, into a product-development company, to meet the bar-code and RFID needs of his customers. Making the pivot wasn’t easy at first, he admits: “It was a big, big deal for us, but we did it.” A former VP in the IT department of the defunct bank Manufacturers Hanover, Brand and his partners withstood a period during which the success of RFID was questioned. “We hung on, and it turned around, and now everybody is adopting it or planning to adopt it,” he says.
Many niches have a short shelf life. “If it really is a great idea, someone else will come in and attack,” Thorp says. “The key to a successful business is to find another niche that the customer set has.” Brand has already staked that out: auto-ID, the technology behind the much-anticipated “Internet of Things,” or IOT. “That is the third wave we are moving into, with a new product for that coming out this fall,” Brand says. “We keep reinventing ourselves, but this time we saw the IOT potential and decided to run for it, to lead from the front.”
Reinvention is critical for any small business looking to exploit an untapped market. When Louis Cordasco founded his restoration company in 1960, “He was the first of his kind,” his daughter, Lisa Cordasco, says. “He was a one-man band,” providing services to clients of insurance companies who had suffered damages. “He did everything himself, writing estimates, marketing, sometimes doing the work,” she says. By the time he retired, in 2008, and Lisa took over the family-run company in Port Chester, there were many national restoration chains in the marketplace. She found a way to differentiate her company, by providing environmentally friendly restoration services using nontoxic products.
“As a single parent with a special-needs child, I have a strong focus on health and safety,” explains Cordasco, who renamed the company New Crystal Restoration. “I investigated and use products in the industry that pose no harm to people, pets, or the environment.” She says her products are safe, effective, and no more expensive than those used by the bigger companies and franchises. “We want to be branded locally as combining the old traditions of my dad with cutting-edge products,” she says. “We are focusing on building relationships with the special-needs community, and we place high value on the fact that they have to be safe.”
Such personal relationships can help a niche business find its audience. Solo Technology Holdings, for example, has partnered with The Stutman Switalski Group, a company that provides substance-abuse prevention programs throughout the country. Robert M. Stutman, a former special agent with the US Drug Enforcement Administration, and Judge Jodi Debbrecht Switalski, a former prosecutor who became a leader in the fight against synthetic drugs and the opioid epidemic in Michigan, serve on iKeyp’s advisory board. “We believe partnering with experts like them will help solve the problem [of opioid abuse],” Danzig says. “We want to educate people that they have to keep their medication safe.” They also want these partners, while providing their prevention programs, to present the iKeyp safe as a partial solution. “We believe the majority of the public is not educated about this problem,” Hermann says. “If we can get the message out, we will quadruple our market size.”
Staying on top
Once a niche business proves itself successful, it’s only natural that competitors will move in. How does a small, niche company maintain its advantage? “You have just described capitalism,” says SCORE Westchester’s Thorp.
One way may be to get a patent or trademark on the product, if possible. Solo Technology Holdings has a patent pending on its safe’s installation process, which it says requires no tools. But patents aren’t foolproof, Thorp adds. “If someone copies it, what can you do, sue?” That’s expensive, especially if it’s a big company with deep pockets and an army of lawyers behind it. “They can drive that person out of business,” Thorp says.
Brand sees similar dangers in the IOT space. “With IOT, it’s not just small players; we’re up against the real giants — Apple, Google, which are investing billions in this. We can’t afford to get crushed by those guys,” he says. How will he avoid that? “We have to build our own niche of IOT and do things that they aren’t doing. People will ask us: ‘Why do business with Cybra and its 20 employees instead of IBM?’ It’s finding the parameters — which constantly change — that differentiate us and communicating that to customers,” Brand says.
Success has its own landmines, as well. With growth comes increased costs, which have to be controlled carefully, Thorp says. Schulman agrees. Sarene has grown to employ about 25 employees. “We have doubled in size every year for three years, and managing growth is our biggest challenge,” he says. “We are all sales guys, so sales have been relatively easy for us. The hard part is making sure all our suppliers are happy and that we are growing with them.” Schulman — who recently learned his great-grandfather was a moonshiner who had been arrested during Prohibition (“Alcohol distribution apparently runs in our family,” he laughs) — has extended his company’s reach from Albany through Long Island and is moving to an entirely refrigerated fleet of trucks. “We will be the first I’m aware of in New York [to use these trucks],” he says, “to make sure our beer arrives as fresh as possible.”
The joy of niche
Being a small, niche company allows Schulman and companies similar to his to stay nimble and make quick decisions. “At a big distributor, you get hung up. You need to talk to a manager, then he has to talk to his manager,” he says. “We don’t need approval from anyone. If you need a truck, you go get a truck.”
For older businesses, other companies in the market space can become almost like family. Cordasco says her father’s contacts in the insurance and contracting fields have also had children who are now her contacts. “We have relationships with industry players that grow generation by generation, and now my nephew has relationships with his peers,” she says. “We have developed a nice rapport in our B-to-B relationships.”
Perhaps best of all, niche markets also give entrepreneurs a sense of purpose. “I was in finance with Deutsche Bank, but I wanted to do something different and make a difference,” Danzig says. Passion for a product or service, be it medication safety, cutting-edge technology, or really good beer, makes business fun. “I used to come home from Manufacturers Hanover tired,” Brand says. “If I had it to do over again, a smaller company environment gives much greater satisfaction. We are always competing against ourselves to do better. It’s that drive to excel that keeps me young.”