5 steps to building a successful niche company that reaps more financial rewards than if you spent your time chasing growth
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In the early months of 2020, when Adam Davidson published his book, "The Passion Economy," he had no idea that the predictions he made about a new economic system ushered in by automation and technological advancement would happen so quickly. The pandemic has compressed a yearslong process into the span of several months. Physical storefronts closed, prompting business owners to prioritize online sales. Software companies that charged clients for use of their scale — Facebook, Google, and Amazon, notably — increased their market share, as entrepreneurs piggybacked off their reach to find new audiences from their home offices. Thousands of businesses that were unable or ill-equipped to make the required pivots, closed. In short order, Davidson's passion economy went from a distant prospect to the new reality. So, what does this new ecosystem look like? According to the "Planet Money" cofounder and journalist, the passion economy combines artisanry and scale with the connectivity afforded by the internet. Combining all three attributes, this new business landscape can be divided into two main camps: the massive, scale-oriented corporations, and the niche, targeted entrepreneurs. Davidson calls the new distribution "barbell-shaped." "If you look at the radical changes from the 20th century to the 21st century, what we're losing is the mid-sized company, the regional player," said Davidson. "There is still massive scale — Google, Amazon, and Apple are bigger than any company has ever been and will continue to grow — but there has been a death of scale needing other people." On the other end of that barbell, says Davidson, lies the passion economy: a universe of savvy entrepreneurs who satisfy the hyper-specific needs of niche audiences. Davidson spoke with Business Insider to share the new operating perspectives that small business owners should adopt if they hope to remain competitive. Create intimacy at scale Creating intimacy at scale relies on the best parts of the last three centuries of business — artisanry, scale, and connectivity — to work in concert. Business owners create intimacy by discovering their niche audience and then engaging with it, launching dialogues that allow entrepreneurs to better meet the needs of their clients. Through technology, business owners can have direct relationships with customers all across the world, meaning they no longer need to live near somebody to do business with them. Don't be a commodity The decline of American manufacturing came from automation and international competition hollowing out the labor class, leaving a handful of multinational companies in control over vast swaths of the commodities market. To find success as an entrepreneur, then, Davidson says to avoid any business model that requires competing on a price or volume basis. Instead, stay niche and serve audiences that the larger companies have overlooked. "As consumers, we're going to have a lot of products that we're indifferent about, and those are going to get cheaper and easier to access through scale channels," said Davidson. "But many of us have a few things we care a lot about, and hopefully we'll be able to find more weird and unique things that, say, you love, but someone else has never heard of." Find your "Goldilocks market" A Goldilocks market is one that is neither too large nor too small, which allows a business to avoid competing with market behemoths while still doing substantial enough numbers to thrive. This is a foundational concept of the passion economy and the natural byproduct of Davidson's first two mottos. In "The Passion Economy," he cites Kirrin Finch, a formalwear clothing company for lesbians and non-binary women, as an example of a business that encapsulates this idea. Marketing is more critical than ever In an economy predicated on personal connection and storytelling, the importance of marketing is paramount. Passion-economy players are not competing through means of scale or pricing efficiencies; they are connecting with niche audiences who find resonance in the mission of a small creator. As a result, branding, marketing, and SEO are vital. The passion economy might sound romantic, but it requires a savvy understanding of digital presence. "The challenges facing passion-economy businesses are very different from their historical precedents," said Davidson. "It's finding and then matching intimate, intense, passionate engagement." Use platforms designed for passion-economy creators The passion economy would be impossible without software and social media, especially websites like Facebook and Google that make worldwide advertising intuitive enough for the average business owner. But new platforms are cropping up that put even more power in the hands of small business owners, especially in creative fields. Sites like Patreon, Substack, OnlyFans, and Shopify have, to quote Shopify's CEO Tobi Lütke, "armed the rebels." These new tools give creators even more means of controlling and monetizing their business, and Davidson believes their growth will be instrumental to the future of the passion economy.SEE ALSO: A day in the life of an OnlyFans creator who makes up to $100,000 a month off explicit content SEE ALSO: Substack creators are making 6 figures off newsletters. Here's how they built their audiences from scratch. 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