Hi All!

Here is my weekly email discussing mental models, performance, business and entrepreneurship.

If you love this content (please share it), but also…

Check out my Podcast, connect with me on YouTube / Twitter, and read my daily newsletter.

What’s in today’s newsletter?

• Specialize first, diversify later. Build a strong foundation in a niche before expanding your horizons. As Jeff Bezos said, "You have to pay a price for your distinctiveness."

• Adapt your strategy over time. Specialization and combinatorial thinking each have their place depending on your development stage. Stay agile and optimize for each phase.

• Deploy counterintuitive strategies (I’ll discuss them) used by all successful entrepreneurs to build strong foundations before branching out into new domains. Also know when's the right time to transition from niche focus to combinatorial thinking.

Our world today is fascinated by cross-disciplinary innovation. It seems like the best ideas come from combining different fields and perspectives. I’ve written about combinatorial thinking several times.

But today I’m going to tell you why you need to niche down and specialize (at least for a period of time), in your career or in your business.

I have no doubt you’re asking… why would anyone wanna specialize in a narrow domain? Wouldn't that limit their potential and creativity? Didn’t you just tell us something radically different, just last week?

Well, let me explain. There’s a time and place for everything and history tells us a different story.

See, many of the most successful people and businesses started with a deep focus on one area.

They built a strong foundation of expertise and reputation before branching out into new domains.

They understood that specialization and diversification aren't mutually exclusive, but complementary strategies for growth (I’ll give you some examples in a second).

Now. Why is this top of mind?

About a year ago I had Joe Foster, the founder of Reebok, on my podcast. I learned that Reebok became a global brand by specializing in women's aerobics shoes (niching down).

But when we met for coffee yesterday, he shared how Reebok later diversified into other sports and markets. He explained how specialization gave Reebok a competitive edge, but also how diversification helped Reebok adapt and thrive.

His story inspired me to write this newsletter and explore the role of specialization in growth, and how to balance it with diversification.

I believe that both approaches have their merits and challenges, and that the key is to use 'em wisely and intentionally. As Jeff Bezos said:

"You have to pay a price for your distinctiveness, and it's worth it."

In this newsletter, I'll share with you my perspective on how to find your niche, why you need to care about it, how to leverage it for growth, and how to expand your horizons when the time is right.

I hope you'll find it useful and interesting.

Finding Your Niche

Finding your niche is one of the most important and challenging tasks for any aspiring creator, entrepreneur, or professional.

• How do you find your niche?
• How do you know if you have chosen the right one?
• How do you validate your niche before investing too much time and energy into it?

Well that’s what I’m here for. Let’s start with two frameworks.

The Venn Diagram Framework

The Venn diagram framework for finding your niche helps you identify your unique combination of skills, passions, and market opportunities that can help you create value and stand out.

This framework forces you to visualize these items.

The elements you visualize are the three key factors that define your niche:

• Skills (Expertise & Experience): What are you good at or can become good at with practice and learning?
• Passions (Energy & Enthusiasm): What do you enjoy doing or learning about?
• Market (Economics): Who are the people who have a problem that you can solve or a need that you can fulfill?

Your niche is the intersection of these three factors. This is your sweet spot where you can create the most value and differentiation.

The framework is very easy to implement just, follow these steps:

1. List down all the skills, passions, and market segments that you have or are interested in.
2. Draw a Venn diagram and see where they overlap. You can also use online tools like this one to create your own Venn diagram.
3. Find one or more areas of overlap that are specific enough to be distinctive, but broad enough to be viable.

For example, if you are skilled at writing, passionate about personal finance, and interested in serving young professionals, your niche could be writing about personal finance blog for young professionals.

Just a reminder, this framework (like most others) are not perfect.

It assumes that your skills, passions, and market are fixed and independent, which is not always the case.

You’ll develop new skills or passions over time, or discover new market opportunities that you didn’t know existed. You’ll also find that some of your skills, passions, and market segments are interrelated or overlapping.

So don’t treat this framework as a one-time exercise, but as a starting point and a guide.

Revisit and update your Venn diagram regularly, and experiment with different combinations and variations.

Also, always be open to feedback and data from your potential customers, and adjust your niche accordingly.

The Hedgehog Concept

Another useful framework to find your niche is the hedgehog concept.

This concept was popularized by Jim Collins in his book, Good to Great, where he studied the characteristics of companies that achieved sustained excellence and outperformed their competitors.

Collins found that one of the common traits of these companies was that they had a clear and simple understanding of what they were best at, what they were passionate about, and what drove their economic engine.

He called this their “hedgehog concept”, inspired by the ancient Greek parable of the hedgehog and the fox.

The parable goes like this: The fox is a cunning and versatile animal that knows many things and can pursue many strategies. The hedgehog is a simple and focused animal that knows one big thing and sticks to it. Every day, the fox tries to catch the hedgehog using different tricks and tactics, but every time, the hedgehog rolls into a ball of spikes and fends off the fox. The fox never learns, and the hedgehog always wins.

The hedgehog concept is similar to the Venn diagram framework, but with some subtle differences.

The three circles of the hedgehog concept are:

• What you can be the best in the world at. This is not just a skill, but a core competency that you have or can develop that gives you a competitive edge and makes you stand out from the crowd. It is something that you can excel at and sustain over time.
• What you are deeply passionate about. This is not just a hobby, but a genuine love and enthusiasm for what you do. It is something that motivates you and gives you joy and fulfillment.
• What drives your economic engine. This is not just a market, but a way to measure and generate value for your customers and yourself. It is something that you can monetize and scale.

To find your niche, you need to identify the intersection of these three circles.

This is where you can achieve greatness and build a lasting legacy.

This is your hedgehog concept.

To use this framework, you can start by asking yourself three questions:

• What can I be the best in the world at?
• What am I deeply passionate about?
• What drives my economic engine?

The goal is to find one or more areas of overlap that are ambitious enough to challenge you, but realistic enough to achieve.

Like the Venn diagram framework, this framework is not flawless.

It assumes that you can objectively and accurately assess your own abilities, passions, and value proposition, which is not always easy or possible.

You may also face trade-offs and conflicts between the three circles, such as having to choose between what you love and what pays well, or between what you are good at and what the market wants.

Don’t treat this framework as a final answer, but as a direction and a vision.

You should test and validate your hedgehog concept with your potential customers, and refine it based on feedback and results and you also have to be willing to pivot and adapt your hedgehog concept as you learn and grow.

The Business Case for Niche Specialization

Why do some companies and individuals succeed while others struggle? Well, like I mentioned, one key factor is specialization. One could argue a thousand different examples of companies that do diversify. But at the beginning, all great companies, hyper focus… to start.

Efficiency

Specializing in a niche allows you to optimize your processes and resources, and achieve higher levels of efficiency and productivity.

For example, Basecamp is a software company that hyper specializes in project management tools.

By concentrating on one domain, they can simplify their roles and workflows, and devote their attention to improving their core features, rather than diluting their efforts across multiple domains.

Efficiency leads to profitability.

Innovation

Specializing in a niche also fosters innovation and adaptability.

By combining different specialties within your niche, you can create new products and services that meet customer needs. For instance, Saxx Underwear specialized in men’s athletic underwear, and used their expertise to create new products like plush loungewear.

Saxx is so deep in the weeds of their consumer and their niche that they notice things no one else will ever notice.

They get a “canary in the coal mine” for their target customer so they can innovate faster than anyone else.

Innovation leads to growth.

Career Benefits

Specialization also pays off in your career.

Sommeliers, for example, advance faster and earn more than general beverage managers, despite having less diverse experience. Depth provides credibility and authority.

Specialization leads to recognition.

The data is clear - specializing in a niche supercharges businesses and careers, providing a competitive edge and higher earning potential.

Specialization always precedes diversification.

The Psychology Behind Specialization

There are significant psychological advantages to specialization as well. Specialization actually helps us perform at a higher lever, with less friction.

The Power of Automaticity

When we deeply specialize in a niche, we train our brains to perform at an elite level with minimal effort.

Through thousands of hours of deliberate practice, we develop automaticity – the ability to execute complex skills without conscious control or attention.

Expert violinists can play intuitively, without thinking about note patterns or finger positions. Likewise, star athletes "trust their training" and execute in flow states. Surgeons enter trance-like focus, losing self-awareness during procedures.

In short, niche specialization enables the brain to conserve mental energy and divert it towards higher-level insight and creativity. Deep skills become instinctual.

Mental Models for Focus

Specialists naturally use mental models like inversion and exaptation to guide their thinking.

Inversion means asking “What would someone do to cause the opposite of my goal?” This flip exposes flaws in strategies.

For example, if your goal is to improve employee retention, you could use inversion and ask "What would I do if I wanted to increase employee turnover?" This flipping of perspective can reveal gaps or flaws in your current strategies. It exposes assumptions, forces you to consider unintended consequences, and highlights actions that could undermine your goals.

Inversion is a powerful framework specialists can use to stress test their plans and decisions. By imagining the opposite intent, they gain insights that strengthen their approach.

Exaptation involves applying niche skills creatively in new contexts, not just where they originated. Knowledge transfers unexpectedly.

For example, the technology behind air hockey tables was originally developed to help clean sensitive electronic components. But engineers later exapted this air suspension technology to invent a new arcade game.

The key is repurposing a specific skill or innovation for a completely unrelated use case. Other examples:

• Using medical adhesive technology to develop soft mountaineering picks that grip ice.
• Leveraging expertise in aerodynamics from auto racing to design more efficient wind turbine blades.
• Applying knowledge of microbiome science from yogurt production to develop new probiotic therapies.
• Building on experience with virtual reality in gaming to create new VR-based PTSD treatments.

The core idea is specialists taking their niche expertise and finding unexpected applications that create new value.

It allows them to maximize the utility of their deep knowledge.

Internalizing a Specialized Identity

Research finds that developing a coherent identity (which comes with specialization) boosts motivation and persistence. Specializing shapes how we see ourselves.

While pigeonholing has downsides, identifying with a niche provides direction and meaning.

As specialists gain mastery, their skill becomes internalized as part of their self-concept.

They think, "I am a marketing specialist" rather than "I do marketing." This identity inspires commitment to the craft.

This deep integration of niche mastery into self-identity acts as a flywheel. As specialists gain renown in their craft, it further solidifies their self-image and commitment.

Their niche obsession breeds more obsession in a virtuous cycle. Being known as the expert woodworker motivates them to become even more adept at woodworking.

From Specialist to Combinatorial Thinker

To tie this back into how this newsletter started, there is a time for specializing (depth) and time when it really does benefit you to become a polymath (breadth).

Studies show depth and breadth can create powerful synergy:

• Scientists with artistic hobbies are more likely to become Nobel laureates. Diverse activities boost creativity.
• Inventors with patents across fields produce the most radical innovations. Varied experience connects unforeseen dots.
• Entrepreneurs who've worked in different industries have higher success rates. Their wider lens reveals overlooked opportunities.

In summary, breadth can enhance depth.

But depth comes first.

Once you’ve achieved depth, you can pursue breadth, aka combinatorial thinking (if you haven’t read past newsletters), which is the art of blending skills from different domains to create new value, like musical notes mingling in a hit song.

Thinkers like Scott Adams, Tim Ferriss and Elon Musk exemplify this art, combining distinct expertise into unique outcomes.

• Adams leveraged skills in business, humor and cartooning to create Dilbert
• Ferriss combines writing, entrepreneurship and self-experimentation to engage followers
• Musk integrates engineering, innovation and vision to launch groundbreaking ventures

Transitioning from niche expertise to combinatorial thinking requires meticulous timing:

• Before specializing: Sample diverse domains to discover native strengths and passions.
• While specializing: Complement your core skills to avoid tunnel vision. Stay updated on broad trends.
• Post-specialization: Leverage niche expertise into new spaces. Diversify offerings. Create novel hybrids.

Balance breadth and depth as needed. But always build upon a specialized foundation.

Remember.

Specialization brings mastery.

Diversification brings growth.

Both are essential.

The key is embracing each phase fully in its time. Don't rush from novice to polymath overnight.

Start by finding your niche. Tend your craft through deep work. Gain skills unconsciously. You’ll eventually start to master your thing.

Then carefully broaden your scope. See how your specialty converges with alternate modes of thought. New synapses will spark at these intersections.

As Jeff Bezos says, "You have to stay alert, engaged, and continually learning."

Maintain a beginner's mind along with your hard-won expertise.

Your journey will have twists and turns. Specialize, diversify, oscillate. Optimize for each terrain. Enjoy the trip.

And at the end of the day, keep moving forward.

Momentum conquers all obstacles. Progress compounds.

If you enjoyed this article, I’d love to hear from you.

Email me at [email protected] or tweet at me @ScottDClary and I’ll do my best to get back to everyone!