Serve_the_Underserved-I_Sam_Island-PROFIT_500_October_2016-600x400

Illustration: Sam Island

In the beginning, Hamed Shahbazi’s business built automated kiosks. Not the sexiest market and, as it happened, not one consumers cared much about. What people did like, Shahbazi says, was a feature that allowed them to pay bills by feeding cash into the machines.

This alerted Shahbazi to a market he quickly learned was underserved: North Americans without traditional bank accounts. Since then, his firm, TIO Networks, has evolved into a multi-channel payment tech provider by catering to the needs of that niche. Now publicly traded, TIO consistently outperforms analyst expectations and saw sales more than double from 2010 to 2015, earning it the No. 382 spot on this year’s 2016 PROFIT 500 ranking of Canada’s Fastest-Growing Companies.

Its growth is a sound argument for paying attention to the market segments no one else is, and many PROFIT 500 businesses have taken the same tack. Their experiences are a primer in how to smartly identify—and dominate— lucrative undiscovered niches.

Mind the gaps

Possibly the main benefit of targeting underserved segments is a relative lack of competition, but it’s not as if eager clients are holding up signs that read, “Please! Take our money!” Figuring out where the real opportunity is often takes a lot of reconnaissance work and some deft analysis.

“I always start by doing market research,” says Jon Pole, president of My Broadcasting Corp. (PROFIT 500: No. 335), a company based in Renfrew, Ont., that produces hyper-local FM radio stations in smaller markets across Ontario. The company began with Pole’s feeling that Renfrew (population: 8,218) was not getting adequate media support. Technically, it was served by Ottawa radio and TV stations and a weekly newspaper, but in practice, the Ottawa outlets rarely covered local affairs, and the paper couldn’t keep up with breaking developments. Pole knew listeners would welcome real-time updates—especially for such occurrences as bus cancellations and business closures—and, as he took the idea to market, he learned that a healthy pool of advertisers within a 35-kilometre radius liked the idea, too. “They were saying, ‘Hey, here’s somebody that is providing local content on a daily basis, so I’ll back him,’” says Pole.

He has since applied the same analysis to many other markets across Ontario: My Broadcasting now has 19 radio stations, each with a companion website. His approach to each potential expansion has been not to look for markets with no media outlets but to identify those where the incumbents’ offerings are subpar. He does that by listing what each competitor has to offer and then asking himself whether My Broadcasting can provide a better price, a better value and a differentiated market presence. If the answer to all three is “yes,” he’ll go ahead. As a result? “We found a lot of markets that nobody was serving well, and that’s where we’ve expanded,” says Pole. “Our competitors couldn’t provide what we could.”

Pole is smart to acknowledge that he has rivals—even if they are weak, says Darren Meister, an associate professor of general management, entrepreneurship and innovation at Ivey Business School. “One of the most terrifying things an entrepreneur can say is, ‘I have no competitors.’ Either no one cares [about what you do], or you’ve defined your market too narrowly.”

Replicate responsibly

Once you’ve found a successful niche for your company, it can be easy to assume it will be the rule, not the exception. One small coastal town appreciates your organic goods delivery service? Surely small coastal towns everywhere will!

Jason Castellan knows better than to make such assumptions. Castellan is co-founder and CEO of Skyline Group of Cos. (PROFIT 500: No. 205), which acquires residential and retail proprieties across Canada as part of a real-estate investment trust portfolio. The company’s focus is on Ontario’s secondary and tertiary communities—the kinds of places most investment companies don’t bother to look.

Castellan and his brother, Martin, started the business by buying a building in their hometown of Guelph, Ont., to offset their university tuition fees. When they decided to expand the income property into a bigger business, their instinct was to focus on other smaller cities—“They’re what we knew, since we’re small-town guys”—but they were careful not to go full tilt into any market that seemed similar to Guelph. Instead, the founders opted to review each expansion on a case-by-case basis, an approach it maintains today: The firm sends reps to personally meet with each building owner on its radar to ensure the buy is actually a fit. “Though it may be a more time-consuming and involved approach, acquiring buildings one at a time and doing the proper due diligence ensures we grow the right way,” says Castellan.

Be sure of your solution

Just because a market is underserved does not mean your business is the one to serve it. Too many entrepreneurs hasten to pursue untapped opportunities without first honestly assessing the real needs of the market and their own capabilities to meet them.

In Shahbazi’s case, research told him under-banked individuals represented 28% of the U.S. population, contributing $1 trillion to the country’s GDP annually. But as huge as the market was, Shahbazi wouldn’t have pursued it if he wasn’t confident TIO could offer what he calls a “meaningful service” to fill gaps in what was being offered. “We didn’t pick the under-banked because it was a contrarian approach,” he explains. “We picked this area because we thought we could make an impact.”

MORE FROM THE 2016 PROFIT 500:

Loading comments, please wait.