Riches in the niches

Hello again my friend,

Last week, I covered Meta is poaching talent from Open AI at potentially $100M base salaries. An absurdly high base salary the world has never seen.

It speaks to the demand of a specialization that is (at least for now), extremely niche and in demand. Very few people can do what they can (presumably), and that specialization is in high demand.

The week before I talked about defining luxury. A completely separate topic that mentioned a specific fact I’m tying together here: luxury conglomerates are in decline. The connection is they do not have (or are at least not known for), a particular speciality and the ‘luxury’ they otherwise offer is now in decline.

Specialization is the connecting factor despite how different the topics may be.

There’s a lot of talk that the world today favours generalists. But I believe this is a misguided notion. The only generalists I know who make millions are entrepreneurs, and the successful ones build a business that typically specializes in one way or another (more on this below).

This post is not to bash the idea of being a generalist. It’s to remind people that riches are in the niches, and generalists succeed best when applying the broad skillset in specific niches.

So, if it feels like you’re doing everything at work or in your business, remember that the business benefits when it’s in specific niches (has a speciality), and I’ll break it down across different businesses and industries to show it’s not a coincidence.

Let’s get into it.

In the last 12 months, LVMH (owns LV, Dior, Tiffany, etc) is down almost 30% in the last 12 months (at the time of writing this article). This is a massive conglomerate with several companies, but no specific design or audience they serve.

I’m generalizing because they own many business, but we can apply Louis Vuitton proper in this case, as it’s their biggest brand at the moment. If the conglomerate is up or down, LV the brand is the biggest contributor either way.

Meanwhile, Ralph Lauren (RL) is up 61% in the last 12 months. This company has been designing a very specific, classic American style for decades. While the trend of using luxury as an identity marker and status symbol has faded, the classic American design RL specializes in is on the rise.

But is it just a trend? Not really.

When you are perceived for specializing in “expensive clothes” there’s a limit to how far that can take you because “expensive” is not design or style per-se. It’s a feeling you can impart on an audience, but not one that everyone will always believe they want. Of course LV is doing well and I’m generalizing a bit to make my point.

Specializing in something on a long-term basis is the niche that can endure, because the people who believe in the same have reason to stay.

So, I’ll end this section with Ralph’s words on the subject.

“Don’t be today’s look. Be a look that’s timeless. Don’t try to be yesterday’s news.”

― Ralph Lauren

There’s an online and in-person community called Hampton Founders. It’s a business in which members pay to essentially join a club. There’s a Slack group where they talk, in-person events, perks, and more.

Now, the reason why this group specializes by demographic is because it doesn’t target any business owner. It targets business owners who have more than a $1M in annual revenue, and are (in the words of the founder) typically between 20 and 40 years of age.

The company does more than $8M a year in annual revenue (subscriptions per year are $9,500 USD or so), and the founder claims they’ll hit $100M.

A community for just any business owner loses the ‘vibe’ compared to when it’s for people making $1M or more. The average revenue for members is allegedly $23M (per same interview).

But you might know that Sam Parr is an extremely popular business influencer with a massive following of 20-40 year old influencers. How is this not a fluke?

Because the exact same business already exists, and does just as well (if not better). Hampton looks like it’s based entire on the Entrepreneurs’ Organization. Another club, where members are business owners earning $1M or more, with the same structure of groups, events, perks, etc. From the outside looking in, they look about identical. Yet both are doing exceptionally well.

Not because they cater to any business owner, but specialize in a specific demographic. And in Hampton’s case, it’s not just because Sam’s got a huge following. While that helps, the exact same business with the same specializing by demographic is also successful.

In this case, this demographic has money to spend, but the same concept of specializing in business over generalizing holds true here, and in other cases as well.

One of my favourite company’s with a cult-like following is Yeti. They make the single best cooler on the market in my opinion. And that’s all they made for 9 years before finally expanding into other products (specifically drink ware).

For that 9 years, they grew and grew until they established a single product, that now does over $190M in sales alone. Surpassed now by drink ware, which they’ve been selling since 2015.

And it might seem counterintuitive. Companies with dozens and dozens of products are not doing nearly as well. Wouldn’t selling more products open a business up for more potential customers? How it is that a focus on a single product line can have such a big impact?

As counter-intuitive as it might seem, it looks like a market would rather buy the best product in the category from the single ‘best’ company that makes it (best is subjective, but you get what I mean). Remember when I talked about how Hailey Bieber’s Rhode sold for $1-billion? They carried just 10 products at the time.

One product in a few different sizes and colours established Yeti as the go-to for an entire market of outdoor enthusiasts. If you’re serious about camping, hiking, and all that stuff, you are all about Yeti and (for that audience), it’s an identity market for their specific niche. Not a big conglomerate, but a specialized product for a certain situation.

At the top of this post, I talked about there’s always a place for generalists. They may not always make $100M in base salary like our friends getting courted by Meta (and frankly no one does), but there’s something special about starting on your own and doing a little of everything. Ralph Lauren did it all himself at first. Sam had a running Google Doc and was DMing people on Twitter to join Hampton. The Yeti founders wore every hat in their business at one point.

The generalist who can do everything has a supreme advantage, of course. But only when it’s applied in a specialty context. The riches are in the niches.

Thanks for reading!