Credibility is King In markets where every customer is an expert, authenticity is the key to success.

Most business owners would give just about anything to have a guaranteed stable of loyal customers. But imagine if almost everyone in that stable knew as much about your business as you do--if not more--and one slip-up could drive most of them away in one fell swoop.

That's the double-edged sword of the niche business owner. Wielded properly, it can be used to slice up the competition.

"It's so important that you're authentic for the market and audience you're going after," says Scott Tilton, co-founder and CEO of Loop'd, a social networking website based in San Diego that connects action sports enthusiasts with their favorite companies and athletes. "Action sports is such a niche audience, and they're so particular about who they let in. It's very important that you're in tune with that, or you'll immediately fall apart and you won't be accepted as part of that audience."

Boomer Lowe knows how important reputation can be to the success of a niche business. He's the owner of Hyde Park Records in Chicago, where the customers prefer latte to Red Bull, instrumental jazz to, well, whatever the kids are listening to these days and, most important, talking to texting.

"It's all word-of-mouth," he says. "When we opened the store, we wanted to make sure we had good stuff to offer, so we put all of our personal stuff in here. The stuff we had in here was stellar. That made a great first impression and we're still living off of that."

Crashing the Party
Tilton, 31, practices what he preaches when it comes to putting emphasis on credibility. He competed in BMX and Motocross racing for 10 years, and everyone on his sales and marketing staff has some form of action sports background. He says the proliferation of technology has given more momentum to an already ultra-dedicated market.

"These kids, they live online," he says. "They're texting and posting profiles and blogs and telling people what they're doing via the web. We applied that knowledge to the sports where these kids are highly passionate. That's what action sports is. It's a lifestyle. It's not something you do. It's something you live. We've tried to marry that passion with social networking that helps them explore the action sports lifestyle."

Loop'd, which, according to Alexa.com, averages about two million daily page views, works with some of the action sports world's biggest players, offering anything from traditional display advertising on the site to dedicated online communities that can be built around a company's brand. From a business standpoint, one of the biggest dangers in such a tight community can be the perception that comes with success. For already successful companies trying to jump on the bandwagon, Tilton says, getting a foot in the door can be even tougher because they're trying to appeal to tight-knit communities based on decades of camaraderie.

"You can't really set out to create that. You have to earn it," he says. "Nike is one of the better examples. They've learned from their mistakes of trying to enter the action sports community. Now they've done an exceptional job recently and staying under the radar--intentionally not overexpanding and making people think they're trying to buy their way in. They really want to make sure they're respectful of the other brands in the industry."

For business owners, the saying "hard work is the reward for hard work" is never truer than it is in niche markets. Because once they've allowed someone into their world, niche consumers want more than products and services. They want dialogue.

"It's really a two-way street," says Victoria Grantham, managing director of Rose Communications, an independent public relations firm with offices in New Jersey and Baltimore. "You have to pay attention to what's already happening. A lot of times, you're entering a robust existing community, so you really need to be listening and then interacting in a way that makes sense in terms of that community. It needs to be a continuous commitment. It can't just be a one-shot thing."

And it's not just about communicating, says Grantham. She says the timing and method of the communication are almost as important as its content.

"The medium is key," she says. "Social networks can be very useful for certain types of audiences. They just have to be used properly. For somebody who doesn't have a lot of experience online, I'd say really delve in there and find out where your audience is online. You don't just want to blindly throw things out there because that will undermine your authentic voice and your potential for establishing a good reputation."

Sales Rep
Lowe, 32, explains that, with the exception of the phone book, he doesn't do any advertising, and he doesn't sell merchandise on the store's website, save for a few eBay auctions. But knowing he has the "diggers"--collectors who go from store to store scouring the shelves for that rare find--hooked, and that they'll tell fellow collectors where to shop is all the advertising he needs. Besides serving a cultural community, Lowe says he also has the advantage of being able to cater to Chicago's distinct geographic dynamic, in which people tend to be very loyal to their particular neighborhoods.

"Where we are in the city, there aren't any good record stores," he says. "We're like the only game in town as far as a brick-and-mortar store. When dudes in the neighborhood want to sell records, they know we'll buy them. When we got here, people were like, 'That's where the record store is.' "

Once he had established his store's reputation with the locals, Lowe says, things started to take off on a larger and unexpected scale when some of his eBay bidders--from as far away as Japan--began showing up at the store. Many of them represent large record stores in Japan and spend twice what the entire store usually makes on any other day.

"There's actually a guy in Chicago who's a guide for these Japanese record store folks," Lowe says. "He loves us, so he brings those guys here. Now that our name is synonymous with good stuff, we get at least one or two foreign buyers in here every week. Before, we didn't even know they existed. Now they come in all the time."

For Lowe, like most niche business owners, dealing with customers who know so much about his product creates a delicate balance--he has to be fair enough to keep them, but shrewd enough to stay in business.

"In the record buying market, if you get the good stuff, it's how you present it and how you price it," he says. "There are some stores who don't know what they've got. Diggers love that. They say, 'Great, you're selling this for 99 cents. I'll sell it for $300.' There are other places, when they get the good stuff, they sell it through the roof. Because we get such good walk-in stuff, we don't have to do that. Collectors appreciate that. It's helped us a lot that we price stuff fairly. If you gouge, people who really have to have something might buy it once, but they won't come back."

In addition to maintaining that balance within the business itself, Grantham says, it's also important for niche businesses to be transparent with their customers because the line between the business and the community of its customers is so blurry.

"When you have a financial interest in something, that's fine," she says. "But being upfront is very important. If something goes awry, fess up. Be honest about what happened and make it right as quickly as possible. If you violate that trust, it can be a real issue."

For now, Lowe seems to have it down. Either way, he's content to focus on his core customers and let the chips fall where they may--because that's what they want, and besides, he's one of them.

"We can't be all things to all people," he says. "The mom and pop stores that try to do that are all closed. We're going to handle what the neighborhood wants and that's it. If you want Celine Dion, go to Target."