A niche is a small area of focus that one should build a business around. You can't start a business and make everyone your customer. You need to narrow down an audience and tailor your services to that specific audience/niche. Doing so will make marketing your services much easier, and you will grow faster.
When you think about it, every business starts in a niche and scales from there. Amazon started by selling books, and Apple started by selling computers. In business, you perfect one thing first or at least get it as perfect as possible since nothing is ever perfect, and then you move on to the next if you want to keep growing.
It's also okay to remain small and do business in a small niche because a tiny niche business can be highly profitable and make you a lot of money. My cleaning company is a small niche tailoring to those who want home cleaning in the Chicago area. We also focus primarily on smaller homes, yet the business generates over 350k in profits before taxes per year. Having a 350k a year business is a lot of money to many people, so if you don't want to scale up your company because you're happy with 100k or 350k, you don't have to do it, but you have to start with a niche.