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For almost five decades, I’ve had the privilege of starting and operating more than 150 businesses across a litany of industries.
One of the keys to my success is that I have never been one to follow the herd. Instead of competing in saturated markets, I’ve targeted niche opportunities in fragmented industries. These are industries where others either don’t see the potential or consider them too risky. These overlooked sectors often hold the greatest promise for entrepreneurial success if you know how to approach them.
In this article, I want to share my insights into how I’ve consistently been able to spot and capitalize on these opportunities. While it might seem challenging to step into a niche market, understanding how to assess and navigate these fragmented industries can lead to rewarding business ventures that others might never even consider.
What is a Fragmented Industry?
A fragmented industry is one where no single company holds a dominant market share. Think of industries where thousands of small businesses are competing, but none control a significant piece of the pie. Examples might include things like boutique travel services, small-scale construction, or even niche segments of retail. These industries are ripe for entrepreneurs. That’s because they lack a clear leader, meaning the barriers to entry are relatively low, and there is room for innovation.
But there is a catch: fragmented industries often don’t get a lot of attention. They can be hard to spot because they don’t generate the buzz that major sectors like tech or finance do. This is why most people miss the opportunity. But for those entrepreneurs who are willing to look a little deeper, these industries can be very rewarding.
Recognizing Potential in Niche Markets
So, how do you go about identifying these fragmented markets? The first thing I typically recommend is paying attention to inefficiencies. To elaborate, fragmented industries are often riddled with inefficiencies, such as outdated technology, poor customer service, or a lack of coordination between suppliers and customers. Wherever you see inefficiency, there’s an opportunity for disruption.
For example, one of my entrepreneurial ventures, which has been a steady performer for me, involves exotic auto rentals. When I entered the market, there was no major player offering a streamlined, luxury experience. The industry was fragmented, with many small operators offering cars, but none of them doing it at scale or with a luxury service in mind. By recognizing that inefficiency and focusing on creating a better experience for the customer, I was able to carve out a niche and establish a profitable business.
In addition to inefficiencies, I recommend looking for industries where demand is growing, but supply hasn’t caught up. These can be industries where consumer preferences are shifting, but the market hasn’t completely adapted yet. The luxury lifestyle sector is a great example of this. As people’s tastes have become more refined, there has been growing demand for high-end, curated experiences—whether it’s in travel, dining, or retail. Still, many industries are still operating with a mass-market mindset. This creates space for entrepreneurs who can offer a better, more personalized, premium service.
Building a Strategy Around Fragmentation
Once you’ve identified a fragmented industry, the next step is to create a strategy around it. This is where many entrepreneurs make mistakes. They see a niche market and think they can simply copy what’s already being done, but that won’t get you very far. To be successful, you need to offer something truly different.
I always start by asking myself, “How I can address the inefficiencies in the industry? Can I introduce new technology to streamline processes? Can I offer a higher level of service that sets my business apart? Can I create partnerships that no one else in the industry has thought of?” These are the kind of questions you should be asking if you want to build a sustainable business in a fragmented market.
When I moved to Africa in 2013 to volunteer with an international NGO, I not only learned about the challenges facing local businesses, but I also identified tremendous opportunities in fragmented markets. By collaborating with my African partners, local governments, and even the U.S. Embassy, I was able to create bilateral ventures that bridged the gap between U.S. businesses and African markets. This is another important aspect of capitalizing on fragmentation; creating strategic alliances. By bringing in partners who complement your strengths, you can rapidly scale your business in ways that would be difficult to do alone.
Creative Financing is Key
Another important aspect of succeeding in fragmented markets is financing. Because these industries are often overlooked, traditional financing options might not be readily available. Banks might be hesitant to lend to businesses in industries that they don’t fully understand. This is where creative financing comes into play. I’ve built much of my career by leveraging non-traditional financing methods, from private equity and angel investors to more innovative techniques like revenue-sharing models and tokenization.
One of the best pieces of advice I can offer is to never let a lack of traditional funding stop you from pursuing a good idea. There are always alternative ways to finance a business if you’re willing to think creatively. If you can prove that your business model works, investors will come, whether they’re traditional bankers or more forward-thinking partners.
The Importance of Agility
Finally, it’s vital to understand that fragmented industries are often in a state of flux. This means you need to stay agile and then be ready to pivot if necessary. What works in the early stages of your business might not work as the industry changes. One of the biggest advantages of being a small business in a fragmented industry is your ability to act quickly and adapt. Larger companies can’t do this as easily, which is one of the reasons small businesses often succeed in these markets.
Throughout my career, I’ve seen time and time again that the entrepreneurs who succeed are the ones who are unafraid to change course when needed. It’s not enough to simply spot an opportunity. You must be able to adapt and evolve as the industry changes.
If there’s one thing I’ve learned over the years, it’s that fragmented industries offer incredible opportunities for entrepreneurs who are willing to think differently. By focusing on inefficiencies, building strategic partnerships, and staying agile, you can create a profitable business in markets where others might not even see the potential. It’s all about being willing to go where others fear to tread, then having the persistence to stay the course.
Peter J. Burns III is the founder and CEO of Burns Funding (https://burnsfunding.com/), alternative funding company.
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