More than half of small business owners feel that they are not in fair competition with larger corporates, according to a recent poll on SmallBusiness.co.uk, with superstores making it increasingly difficult to trade in the face of an ever-decreasing market share.

A significant number of you, 37 per cent, claimed that if you can find a niche or a unique way of working, it is still possible to survive against the supermarkets as a smaller business.

SmallBusiness.co.uk caught up with Tim Slatter, co-founder of speciality cake-maker www.thecakestore.co.uk, a company that took on the larger stores and, in the face of strong competition, has now achieved sales of around £1.5 million.

Were you always in the cake-making business?

We were part of a family business made up of five bakeries. They were traditional, high-quality bakers and we had a real love of the trade. This was around 25 years ago when large supermarkets didn’t have in-store bakeries. It was a real period of boom for the company and we just couldn’t make the products quick enough.

Suddenly we began to see supermarkets cutting prices, building bakeries in-house and selling cut bread, which hit the industry really hard.

So we began to see fewer and fewer traditional small businesses of this type?

Well, yes. Due to the financial muscle they could exert, most of the large companies could offer staple products like bread at a loss just to get people into the shop. That’s why things like bread and milk are always at the back of the store. I mean, where do you find a fish mongers or a quality green grocers these days?

What did the extra competition and supermarket undercutting mean for you?

For us and many like us, it meant that we had to start specialising in the take away side of the market. Think of Greggs the bakers, they focus mainly on this market now.

This price cutting by big supermarkets meant that we were close to going bust and we realised that we had to rethink if we wanted to survive.

So what did you do?

Well, luckily, we saw the commercial potential in the cake decoration business. We met an amazingly skillful cake decorator and realised that this was something that the large supermarkets just wouldn’t be able to offer. They are after volumes and profit margins, so if we could offer something more specialised and more creative we might have a chance.

Our cakes are three dimensional and quite ornate so the time needed to make them and the logistics of transporting them just isn’t something that supermarkets want to get involved with.

What was the next step?

In 2001, we set up the website with very little technical knowledge, using a system called Actinic, sort of an off-the-shelf website template designed for small businesses. We realised that we could make more money renting out the shop space we had and concentrating on the website and online sales, with just the one flagship store.

And it worked?

It worked! We’d managed to find a niche in which there were very few competitors. We relied on word of mouth recommendations and some PR coverage initially to get the message out there and once people started visiting the website, our ranking on the search engines began to climb.

Overheads were down because we weren’t worrying about five different stores and profits are climbing.

What have you learnt along the way?

Well, I think we’ve learnt by a little bit of trial and error. But if you can specialise in your field and find an area that your larger competitors can’t challenge you in, all the better.

This is helped by the fact that the way people use the internet and search engines is becoming more refined. People used to just search for ‘cake decoration’ but nowadays they tend to make it more specific. People are much more knowledgeable about how searches work and this helps smaller niche players.

So what are your top tips for someone looking to specialise and find their niche?

I would say that you need to refine what you’re offering and keep on your toes to stay one step ahead of the market but most of all, you need to make sure that it’s something that people will want, which involves a certain amount of research in your area.

Secondly, make sure that you can fulfil your orders to a high quality. That’s your unique selling point as a smaller business: the quality that you can offer. While larger supermarkets are churning out products to get better margins, you can give customers something that’s had more time given to it.