But when you're starting a company this is a danger: you might get some initial traction but is your growth all in a corner case? This is almost a restatement of the "early adopter" cohort in "Crossing the Chasm".
Dominating a niche isn't alway bad BTW -- FB's niche was college students, who could evangelize and grow the overall market.... though notice that FB is pretty much nonexistent in that niche today.
* I mean this in a good sense: "exploit" and "take advantage of" often imply something shady.