Who says niche players can't be billion-dollar companies?

Many leading venture capital firms from the U.S. are willing to invest in, and have begun to bet on, niche Indian players. Consider this, till five years ago an investment of $7-8 million in a niche services company, operating on an outsourcing model from India, was considered big. Today, the average size of investment a leading venture capital company makes is anywhere between $20-30 million.

This growing trend among VCs of investing in ‘niche players’, gives me a sense of satisfaction about what I ventured out to do six years back; which was to set up a company focused on ‘testing and quality management’.

With the increase in the number of organizations that have automated their business processes, there has been a growing need for these companies to test the efficiency of their software and IT systems. More often than not, they prefer to engage the services of an independent testing and quality management company, to get an unbiased appraisal. As an entrepreneur, I realized the potential of the testing market and set up AppLabs in 2001, to capture the exciting and tremendous business opportunity that ‘testing’ provided. And since then, AppLabs has been growing significantly.

Contrary to what comes to mind when thinking of a ‘specialized niche company’, AppLabs is not built around a small opportunity. In fact, it is possible to build a $1 billion company in this niche segment of ‘testing and quality management’.

Let me illustrate my point. Once a strong value proposition is built to focus on a particular niche segment, one needs to identify an opportunity that is scalable. Here, I would like to clarify that, while in the Indian context scalability often refers to how quickly a company can increase its headcount, in the U.S., it is measured by the market opportunity the company has the potential to capture. Hence, it is required to determine the quantum of business already being generated by the big players in the niche market, as well as implementing an effective ‘go to market strategy’ to effectively compete in the market for business.

On attaining considerable growth in its industry segment, it is also advisable for the niche company to diversify into peripheral or related services. For example, a player in the ‘testing’ market could look at providing ‘security or certification services’ as well. Also, various niche players with related business interests could work through ‘partner referral’ programs which would enable them to offer the entire range of specialized services required by the customers to meet their business needs. The attempt here is not to expand by becoming an ‘end-to-end player’, but to grow the business, while not losing focus on one’s core service offerings. Additionally, a niche player needs to invest in, and build, new competencies in the focused areas. Success is measured by the ‘true value’ provided by the niche company’s services and products to the customer’s business, which will help retain as well as increase the client base.