I’ve watched two niche suppliers businesses do exceptionally well over the past few years. The first, Rogue Fitness, has ridden the wave of Crossfit to a dominant market position in just a few short years. The second, AdaFruit, has similarly rode the Maker Movement to a very, very nice business. According to an article I read recently, AdaFruit is become very profitable. Numbers aren’t available for Rogue, but their marketing seems to reflect they’re doing very very well.
There’s numerous old-line supply businesses that do well but the Internet has enabled even more niche supply businesses to work it seems. No longer does a company need to spend massive amounts on mailed catalogs or customer acquisition. That has decreased greatly with rise of the Internet.
So, in general, when can being a supplier to a niche market be a good business? Supply can be a very good business given a few requisite characteristics exist:
- Adequately large number of items carried. A large selection of items gives the supplier a barrier for others to enter.
- Lots of producers / manufacturers, each producing a few goods. This prevents the manufacturer from economically going directly to the consumer/user or having too much leverage on the dealer. The auto dealers seem an exception here except the local dealers make their money from service and finance, not from selling the cars. They also have the benefit of limited competition set by the manufacturers.
- Goods can be economically transported relative to their cost. This is why there isn’t a national supply chain for gravel or fill dirt, for example.
- Educate-able, repeat customers. Customers should be able to associate a brand with a supply company. In the case of Rogue, they have a top-quality made-in-USA image that goes well with the whackos that enjoy the Crossfit-esque lifestyle. While Rogue stuff is high quality, it also wears out over time.
So, that’s it. If someone is looking to start a supply business and make good money, make certain it has the above characteristics.