Professional service providers are highly respected for their knowledge of complex and sophisticated areas of business. But with so many providers vying for the same clients, commoditization becomes a problem unless you differentiate by service specialization or a niche industry.
Let’s get the definitions out of the way. Service specialization is when you provide a service that is different from the normal suite offered by your competitors. By definition it’s not likely to be a compliance service. Perhaps you guide companies through some process like converting to an ESOP or B-Corp or do some kind of lesser-known international tax. By contrast, a niche industry focus has to do with what businesses you’re targeting as your clients. You may provide the bread-and-butter services to them (and more, hopefully) but it’s the target market that creates the differentiation. Perhaps you are focused on getting municipalities or medical device companies or hotels as new clients.
Why should you differentiate by industry niche or service specialization? You’ll be working smarter, not harder. You’ll stand out as being known for something special so you’ll get better referrals and you won’t have to compete on price. Firms that specialize (by service or industry) attract more opportunities, win a higher percentage of those, and command higher rates for the work. Win – win – win.
How do you identify what industry niche or service specialization to focus on? Here are the four internal and four external areas I suggest considering before declaring your new intentions.
- Willingness to focus – While you must commit to a new way of doing business, not everyone needs to be involved. Partners who are close to retirement are not likely to be motivated to start doing things differently. Fine, but don’t let that stop those who are willing to evolve. You do not have to fire any clients or transfer any relationships (at first). Just decide on one niche or service to get you started so you can practice this process and be convinced by the results.
- Critical mass of clients – To find your first niche, consider your current client base first. Please do this by data and not gut feeling. Run a report in your billing system by NAICS code to determine the areas in which you currently have a significant number of desirable clients. This may be where you should start with your first niche. It also may not be the best place to start if you are groaning at the thought of bringing in more clients like the ones you have now. If nothing else, it will provide food for thought.
- Internal leader – You will need someone to lead the charge so when considering what niche or service to focus on, you’ll need to determine if someone is willing to carry that flag. If not, you can’t be successful at it, so don’t set yourselves up for failure. This person will need to be the technical lead on ALL engagements inside that niche. When new opportunities come along, this leader will be involved with the pitches and will service the new clients.
- Well trained and dedicated staff – As with a leader, you’ll need people to do the work to serve these clients. If the niche/service is going to churn though unenthusiastic staff, the work and clients will suffer. That said, everyone should be educated on the benefits of specialization and should want to work in this premier space within your firm!
- Potential growth market – You’ll want to choose a service or niche that has some potential future success, not a dying market (unless your focus is M&A, of course!). Do some research on the industry trends to see what quantity and size businesses are expected to comprise this market in the next 5-10 years. Also, think upstream because as your firm grows, so will your minimum threshold for new client size.
- Potential cross-selling services – What issues are businesses in your potential niche market facing and how can you potentially serve them? We all want to sell services beyond compliance and the niche focus is a prime way to do that. Business leaders are desperate for quality guidance as the pace of change in so many areas is dizzying. You may currently have the ability to provide additional services to this new market, or you may need to get educated and create a new service specialization to meet the needs of your new clients.
- Potential to be competitive – When considering where to put your efforts, look at the current options your prospects have to choose from (your competitors). If there are a good number of high quality options, or one dominant player who is the default in a certain space, you may want to consider a different niche market. This is when barriers to entry come into play. Of course, once you have overcome the barrier, it will work in your favor. But getting into new spaces can sometimes mean an investment in training or further education. For instance, if you want to do forensic accounting for governmental entities, you’ll need a specific credential. But once you have it, you’ll be in rare space.
- Active industry trade group – This is when you’ll need to consider how to get in front of your new prospects to let them know you’d be an optimal provider of services. A trade organization is like fishing in a barrel. If there is a trade group, the niche leader and the team will need to join and get active with committees, sponsorships, and speaking opportunities. You’ll want to create a niche marketing plan (that goes beyond the trade group) and put year-round effort and investment into making your new niche a success.
For growing firms, the days of serving businesses down the street are waning. With the rise of technology that helps us work from anywhere, business leaders would rather get the best advice from a firm that has deep specialized knowledge and can provide the best guidance than work with the generalist down the road whom they can visit for an open house once a year. If your firm is fishing upstream for larger clients, specialization by service or niche industry is a must. Get started now with one and then add more as you can.
Contact me if you want some help!