The Math Behind Choosing A Profitable Niche
Don’t confuse focus with restriction
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Introduction
Every business mentor says, “Find a niche.”
But what they don’t tell you is this:
A niche only becomes a profitable niche if the Total Addressable Market (TAM) is large enough to support growth, volume, revenue, and long-term sustainability.
Niches aren’t magical shortcuts.
They’re strategic focus points, but when you go too narrow, so narrow that the market becomes tiny, unscalable, or financially incapable; the niche becomes a trap, not an advantage.
Most failed niche businesses weren’t bad ideas.
They were ideas built for a market too small to matter, and this is where entrepreneurs often overestimate the demand, underestimate real purchasing power, or over-leverage a niche angle that never had room to scale in the first place.
Why a profitable niche must fit inside a large TAM
A niche is essentially a specialized slice of a bigger market.
It’s where you position yourself, differentiate, and win, but the slice must still come from a big enough pie.
If the overall pie is tiny, the niche becomes unprofitable, even if the idea is brilliant.
Here’s how niches turn into traps:
01 - The niche is too small to sustain recurring revenue.
There simply aren’t enough buyers.
02 - The buyers exist but don’t have enough purchasing power.
They love the idea, but they cannot or won’t spend enough to keep the business alive.
03 - The niche is too “one-time use,” killing LTV and repeat purchases.
Poor frequency + poor volume = no sustainability.
04 - The business model depends on the scale that the niche can’t provide.
Low TAM = low ceiling.
A niche only works if:
- It solves a painful problem
- for a specific group
- that exists in meaningful numbers, and
- has the money to pay for that solution
This is where most niche businesses fail, and the examples below illustrate this perfectly.
3 niches that failed because TAM was too small
These examples aren’t failures of passion.
They’re failures of mathematics.
They reveal the hard truth: demand must be large enough to justify the specialization.
01 - Subscription boxes for single-use niche kitchen gadgets
A monthly subscription sending highly specialized, single-function kitchen tools to professional chefs or serious home cooks.
Think: mushroom slicers, herb strippers, citrus threaders, hyper-specific utensils.
The problem:
The profitable niche here was imaginary.
- Professional chefs already own most tools.
- Serious home cooks won’t buy endless niche gadgets.
- Casual cooks don’t value such specialized items.
- Frequency of purchase is almost zero.
The TAM wasn’t just small. It was microscopic.
This niche overestimated “interest” and underestimated both volume and purchasing frequency, the two pillars of subscription business success.
Result:
The model collapses because the recurring revenue required to run the business simply isn’t possible.
02 - Hyper-local, high-end delivery for a single premium artisan food item
Deliver $50 sourdough loaves baked by one celebrity baker within a two-block radius of the bakery.
The problem:
The service combined three killers of TAM:
- The radius is tiny.
- The price is premium.
- The product is niche.
Even if people love the bread, they won’t buy it daily.
Even weekly purchase frequency is unrealistic at this price point.
And when your TAM is essentially a few apartment buildings, you’re not building a business, you’re running a hobby with a delivery app.
Result:
The niche collapses under its own restrictions, not its product quality.
03 - An app for managing antique typewriter collections
A software tool for collectors to track, maintain, and inventory vintage typewriters.
The problem:
This market is not just a niche. It is ultra niche.
Globally, the number of serious typewriter collectors is a tiny community, and even within that community, only a few feel the need for a specialized app.
It fails the TAM test on every parameter:
- low number of customers
- low spending capacity
- low frequency
- low urgency
- low LTV
It’s a meaningful idea with passionate users, but passion does not equal market size.
Result:
Great concept, wrong market volume.
The core lesson: A niche is a focus strategy not a scale strategy
Focusing your business is powerful. Niching down improves messaging, product fit, and efficiency.
But niching too far becomes catastrophic when:
- the audience is too tiny
- the purchase frequency is too low
- the category is too stagnant
- the spending power is too weak
A niche is successful only when there is a bigger TAM beneath it, providing:
- enough customers today
- enough customers tomorrow
- enough money for sustainability
- enough volume for growth
The best niches are:
- specific, but not microscopic
- focused, but not restrictive
- specialized, but backed by a large market underneath
This is how you keep the niche powerful — without killing the potential for scale.
Food for thought
A profitable niche is NOT:
- an obscure interest
- a micro-hobby
- an ultra-specific one-time-use market
A profitable niche IS:
- a focused angle
- inside a large, stable, growing TAM
Business is math first, magic second.
01 - Solve a real problem.
02 - For a sizable market.
03 - With healthy spending power, and
04 - Your niche becomes a launchpad, not a dead end.
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Prompt used to create the image for the note
P.S.: Image made on Meta AI using the prompt, “Create an image of an entrepreneur evaluating market size on a digital board with niche vs TAM visual diagrams. Include warm lighting, analytical mood, and a clean 16:9 horizontal layout with negative space for text. No logos or words in the image.”