This is the second article in the series "Niche Marketing - How to Start a Successful Business on the Internet"

There are natural differences between large and small businesses. When you run a small business, you don't have a multi-million dollar advertising budget, and you don't have a lot of personnel to handle the sales and other paperwork. The good news is that with electronic business, you need very little resources to succeed!

The secret here is to find a good market niche, and to create a great product for it. These two actions are strongly interconnected, because each market niche corresponds to a product, or a set of products, and vice versa.

So, what is a "good market niche", and how can you find one? Market niche is your place in the market, your target audience. It should be big enough to generate good income, but not too large. You could ask, "Why? The larger my target audience, the larger my potential income, right?" Right, to some extent. But you can't be everything for everyone. You simply don't have the resources for that. So, if you try to take up too large niche, you'll have to compete large corporations, which is impossible for a small business. Here is a small example. If you try and open an online universal book store, you'll never have a reasonable market share, because Amazon.com works in the same market and has much more resources. But if you specialize and pick a smaller niche (say, old comic books reprint), your chances to succeed are much higher. In this case, your target market will be too small to attract Amazon.com, and you'll be able to write stylish targeted ads, promote your business in online comic books community, and do other things that your larger competition will never even think to do.

And, in addition to having a proper size, a good target market for e-business should be easily reachable online. This means that you must be able to locate the specific web sites, online forums, mailing lists, newsgroups and other forms of Internet communities where your target audience hangs out. You'll want to advertise in those places, because you need pre-qualified visitors on your web site. From this point of view, for example, "Beatles fans" are a better audience than "30 to 40 years old men with a belly", because Beatles fans are easier to locate on the Internet.

Targeting a small niche also has another advantage: it is easier to become a recognized expert in a small field. For example, it is hard or impossible to know everything about all cars, but it is easier to learn everything your customers need to know about recent models of one manufacturer of your choice. You can eventually become one of the world's leading experts in your field, and that will give you the respect and trust of your customers.

Whatever the size of your target market, you must learn the wishes and needs of your audience, and find a great product that would solve some of their problems, or otherwise give them what they want. If the product you sell to your customers is really great, they will trust you better the next time, and will be more likely to buy from you again. This way, you can constantly grow your business not only by attracting new customers, but also by offering new products to the existing ones.

Continued in Part 3: What Should I Sell on the Internet?