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10 overcrowded start-up niches

By Oliver Milman
Thursday, 26 May 2011

The basis of any good elevator pitch, and therefore any decent business, is the crystallising of a problem and a compelling explanation of how your start-up will solve that problem.


Unfortunately, it’s likely that many other people will have had thoughts along similar lines to you. Solo “Eureka” moments do occur, but by the time you get your idea to market, you can find yourself rubbing shoulders with a number of competitors.


Don’t let this be a cause of dismay. There are plenty of other factors – strategy, price, service, cashflow management and marketing, to name a few – that will set you apart from those in the same sector as you.


But it is worthwhile to be aware of industries that have become saturated or those where start-ups have miserably failed to challenge market leaders.


With this in mind, we’ve put together a list of the 10 start-up niches that have become overcrowded. Don’t let this put you off forging ahead. In fact, we’ll be happy if you prove us wrong. But don’t tell us we didn’t warn you.



1. New ways of search


It would seem a no-brainer to most of us, but some start-ups feel that the iron grip Google and, to a lesser extent, Bing has on the search engine market is somehow vulnerable.


Numerous search sites, such as Cuil and Powerset, have come on gone, unable to break this stranglehold.


The latest ploy is to encourage people to use recommendations on social media sites as a way to find products or services on the web, as demonstrated by the admirable Dane Westerweller’s Mate of Mine.


It remains to be seen whether this approach will bear fruit but the clear lesson from recent history is not to go head-to-head with the search giants.



2. Mexican restaurants


At StartupSmart, we’ve been repeatedly told about the same gap in Australia’s culinary market – the need for fresh, authentic Mexican food.


Separate US expat entrepreneurs have rushed to fill this need with the creation of Guzman Y Gomez and Mad Mex, while Zambrero also espouses the need for an alternative to the sub-standard Mexican fare traditionally found in Australia. These three impressive franchises are rapidly expanding across the country.


So, if you are set to launch a Mexican chain on the premise of food imported from Mexico, made by Mexican chefs, served in an upmarket fast food kind of way, save the explanation. We’ve already heard it, unfortunately.



3. Clothing for children


One of the most striking aspects of the inaugural StartupSmart Awards was the number of submissions from parents who based a start-up idea around their own experiences of raising children.


Given the welcome rise of “mumpreneurs” and the lower barriers to entry when starting up, this deluge perhaps wasn’t surprising. However, it was interesting to see how many, whether it’s, or, focused on children’s clothing.


These examples are all great ideas. But accessories and quirky t-shirts for babies are now near-ubiquitous among parents with the disposable income and inclination, as even a quick Google search or a stroll down a shopping strip will demonstrate.


If you plan to build a sustainable business in this sector, you will have to provide a genuine point of difference in what’s becoming a very crowded field.


Also, there are only around 300,000 births a year in Australia. As a target market, that’s not a huge space to tussle over.



4. Group buying sites


Unless you’ve spent the last 18 months in a monastery, it’s unlikely that you will have failed to notice the avalanche of group buying sites that has descended upon Australia.


Spreets, Catch of the Day, Scoopon, Star Deals, Jump On It, Cudo, Ouffer – the list goes on and on. Indeed, we are already starting to see consolidation, as evidenced by Star Deals’ acquisition of Crowdmass.


Granted, there are niches within this niche. BizzBuzz is attempting to corner the small business group buying market, while Liquid Deals aims to do the same thing for wine.


But, aside from coming up with something completely new in a packed field, you will also have to grapple with the possibility that this bubble could burst spectacularly in the foreseeable future.



5. Web developers


If you’ve started up a business with a half-decent website, there’s a good chance that you will have crossed paths with a web developer.


If so, you probably didn’t have to look far. The ability of web developers to work at home with low overheads and affordable technology has seen their numbers explode in recent years.


Where previously you’d need a fairly expensive agency to build you a top-level website, the job can be done by a one-person band working remotely from their home office.


The industry has become so commoditised that some savvy developers, such as Angry Monkeys, have branched out into other areas. Think carefully before you decide to join the throng.

6. Energy comparison sites


Rising energy prices are certainly topical at the moment and heightened consumer concerns over bills provides a seemingly ideal opportunity for a website that compares prices of the different suppliers.


The problem is that it has already been done. The likes of Energy Watch, GoSwitch, SwitchPower, Make It Cheaper and SwitchWise, to name a few, have all sprung up in recent years.


Next year’s carbon tax may provide the perfect storm to assist those looking for a cheaper deal, but you will be up against some well-entrenched competition if you feel that price comparison is a basis of a viable start-up.



7. Recruitment firms


The general recruitment market has long been saturated by generalist firms, prompting many to seek niches in areas such as IT or education.


While this has proved fruitful for some, judging by our recent awards submissions, there still appears to be plenty of start-ups willing to wade into the recruitment sector by promising to be something different, but not exactly defining what that difference is.


Another thing to bear in mind is competition. Not only do recruitment start-ups have to battle against large competitors with long-held clients, they have to convince smaller-scale employers why they should spend money on an agency when online tools such as Twitter and LinkedIn can provide a quick, and free, solution to vacancies.


8. Email replacements


The demise of email has been predicted for years. It’s easy to see why – while social media and peer-to-peer sites such as Twitter and Skype have pushed the boundaries of communication, email has plodded along in much the same guise as when it first emerged.


Some have attempted to kill or radically modify it – just look at the disastrous example of Google Wave. An Australian-based entrepreneur, Bart Jellema, is the latest to try to move the email model along.


Improvements to email certainly aren’t impossible, but it’s clear that it’s very hard for any kind of business to get users to kick the habit entirely.



9. Social media consultancies


Call yourself a social media expert/guru/consultant and you risk derision in some quarters. The role has been parodied endlessly as being a pointless and expensive waste of time.


This isn’t entirely fair. Many Australian businesses still don’t have a social media presence – 14% at the last count – and as this number grows, bosses will need help along the way.


However, the impression persists that this is an industry built on sand, especially as advertising agencies and specialist content creation businesses start to offer social media expertise as a bolt-on to existing services.


10. Solar panel PV installers


With Australia committed to 20% renewable energy generation by 2020, there should, theoretically, be plenty of opportunity for new businesses in the renewables industry.


The installation of solar panels is the most widespread of this green business wave, with the market becoming clogged with start-ups keen to take advantage of generous feed-in tariffs.


However, the future of the sector is uncertain. Not only is the number of solar panel installers unsustainable, many face ruin as feed-in tariff rates are scaled back, as witnessed recently in NSW and WA.


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