Judy Dunn has written an excellent article about why you really should.
Here's one thing I added in a comment:
Just because you finally choose a niche doesn't mean it automatically finds you. It's taken me almost 22 long years to settle into my specialty: teaching creative solopreneurs how to build their businesses.
During those years, I helped all different types of people (some I helped better than others) while I tried to find that sweet spot where I do my best work for people who know they need the help.
But it actually wasn't until 5 years ago, when we launched Marketing-Mentor.com that I claimed "creatives" as my market and committed my resources (time, attention and money) to it. And that does inevitably mean saying no to other opportunities. In fact just last week I declined a offer to write for a magazine because it just wasn't my market and one article wasn't going to make much of a dent if I couldn't support it with an entire campaign toward that market.
You see, I can't do everything. So I have to choose. And I have finally learned where my time is best spent.
Have you? If not, where are you in the process and what questions do you have?