Are you trying to grow too many vertical niches* at once? As CPA firms make the wise move from “generalist” practices to “specialists,” many find it challenging to decide what industry practices to build. This leads to a common pitfall: pursuing growth for too many niches at once achieves too little growth for all. It’s mostly a matter of resources.
This post explains how to proceed with more intention, assess strengths and weaknesses niche-by-niche, and see a clear path to growth for each so you can make better-informed decisions.
If you stop growing all your niches at once, you may worry about offending or deflating people who involved in (and protective of!) industry niches that aren’t chosen for immediate growth. I’ll provide a path to smooth ruffled feathers or better yet, prevent them in the first place, using my freeway analogy, below.
Do you Specialize or Dabble?
Almost every firm claims to specialize in multiple industries but do they really? Once firms look closely, they often find they’re actually dabbling in a niche, not deeply specializing. Not sure why, but most firms (from small to Top 100) have about 7 “main” industries. Of those—
- one is very strong,
- one or two have decent potential with the right development plan,
- two are very much “dabbling,”
- and two are niches in name only—just a decent-size list of customers in a common industry.
Living the “true specialist”—as a group or team—takes considerable resources. Investing in aggressive growth across several industry niches simultaneously isn’t financially feasible, so a common compromise firms make is investing “too little” equally across all their industries. This big mistake short-changes all the niches.
Instead, prioritize just one or two industries at a time for intense development, and allocate a larger proportion of human and monetary resources to these. The resources will include staffing, training/CPE, marketing/BD, recruiting, technology, and more.
Litmus Test: the Segment Scorecard
How do you know where your niches fall in the spectrum of “true specialty” to “in name only”? This post provides a litmus test to help you evaluate your niches and answer questions such as:
- Do we dabble or specialize?
- How much potential does the niche have for immediate growth?
- Is our niche too “people dependent”? If someone leaves, does it put your niche is it at severe risk?
- We have multiple niches and limited resources. Which niches most merit our energy and dollars?
- What considerations are important besides present size and profitability?
- Do we have what it takes to achieve the niche growth we envision?
- How can we be as realistic as possible in our growth expectations for a niche?
Mutually inspired to “Stop the Dabble,” my brilliant friend Eric Majchrzak brainstormed with me. We identified several criteria for a “true” specialty from which I developed this tool: the Segment Scorecard (spreadsheet).
This Segment Scorecard guides you to assess and compare the health and viability of your firm’s current industry segments. Below you’ll find how to use this information and tips for how to communicate about it.
The Freeway Analogy
I use a freeway analogy to help firm leaders understand the strategic rationale behind prioritizing future development and growth investments in their firm’s respective industry niches. I have them envision each industry niche as a separate car on a freeway. At present, all their cars are moving along, some go a bit faster or slower than the rest of the pack.
The best niche-growth approach is to direct one or two cars to “floor it,” but this does not mean the others slow or stop. They rest cruise along as they are for now. After those first cars reach desired speed and have sufficient momentum, you’ll green light another niche or two and they, in turn, floor it.
The simple visual creates comfort and helps appease partners and managers whose industries aren’t first to “go.” The analogy illustrates these remaining niches aren’t stopped or abandoned. Understandably, no one likes to feel left out but I often find these niche leaders are somewhat relieved. They recognize they can postpone doubling down on sales and can spend some time getting their niches in order so they’re ready for their turn to grow fast.
The freeway analogy works well in strategic planning sessions or in budget discussions when leaders have to choose where to allocate resources,The desired outcome is to create a realistic CPA-firm growth plan that’s very strategic about cars to put the pedal to the metal on.
The reality is that firms don’t have sufficient resources to accelerate ALL the cars SIMULTANEOUSLY so you’ll want to make the most informed decisions about which to accelerate. The key going forward is to be very intentional about which cars to accelerate, when, and how much.
Pedal to the Metal: Go or No Go
Use the Segment Scorecard to weigh which industry niches to accelerate and which to simply cruise for now.
- GO: Niches that score highly across the board merit having more resources (people and money) budgeted toward growth than those that don’t.
- NO GO: Niches cannot be built without a leader who is extremely passionate about the niche and fully dedicated. It should be an automatic HARD STOP until such person is in place.
Missing a suitable leader? Do not simply appoint someone who lacks above average in enthusiasm for leading the niche; it never works. If you plan to hire this person, make sure you’re prepared to sufficiently invest in growth shortly after they onboard (6-18 months). This investment includes dedicating at least one more person to the niche so it’s never just a one-person band.
The Segment Scorecard puts front and center much more than just historic revenue & realization: it shows you how well positioned (or not) each niche is for immediate and future growth. By featuring facts such as number of team members who are dedicated exclusively to the niche, and how involved those people are with industry-specific activities, you quickly see ways to improve so success is more attainable.
Put Past Performance in its Place
Let’s talk baggage for a moment.
In the past, if a niche was granted fewer resources than others, the niche leader may have felt under-supported. They may have interpreted the decision as the firm’s lack of commitment to the niche practice, or worse: a lack of confidence in them as the practice leader. This is especially true if discussions centered on low profitability as the basis for low resource allocation.
IMPORTANT: Set past baggage aside when you use the Segment Scorecard. Let the whole data picture drive your choices and justify decisions.
While profitability IS one item in the scorecard, put profitability in its place as a HISTORIC metric. Remember: the past isn’t the same as future performance IF you change your approach. Profits go up when you specialize PROPERLY for two reasons: 1) you are able to charge more and 2) because you will invest in relevant, specialized product development—usually high-value advisory services.
There’s so much more to consider and the Segment Scorecard highlights what those factors should be. Let people participate in providing the data, see the totality of considerations, and understand relative position as to where their industry fits in the firm’s growth plan.
Growth Plan
Whether accelerating or cruising, each industry needs it’s own development or growth plan. Let the Segment Scorecard inform new niche plans. No matter how sophisticated your niches become, there will be no perfect niche. There’s always room to improve and grow, and each niche should continually benchmark against itself more than against others.
The factors in this Segment Scorecard create visibility and awareness of potential improvement areas. Design your growth plans to include actions that boost each niche in one or more of these areas:
- Heighten expertise (thought leadership and industry involvement by individuals).
- Increase relevant service breadth (through your own Research & Development and individuals’ CPE),
- Inspire passion and build leaders (passionate leaders attract great team members),
- Improve internal economic performance (by pricing better and by managing to a better-defined scope!).
- Increase your niche’s representative client base.
Try doing a few of these to prepare a cruising niche for “flooring it” in the future.
Need to Park That Car?
In strategic planning, its rare that you’d end the niche or pull the car off the freeway to park it. But breakdowns can happen. Periodically review each niche for vulnerabilities and remedy them when it makes strategic sense to do so.
Occasionally, however, a car SHOULD be garaged because breakdown is imminent. Or worse, if a floundering niche is pulling essential resources away from higher-potential niches.
Here are 4 wise reasons to pull your niche out of commission:
No solid niche champion.
A niche leader MUST be enthusiastic, committed, deeply passionate about the industry, and willing to be accountable for growing it. The leader’s current knowledge level is much less important than their passion. Passion will compensate! Someone with high knowledge and low passion has no place in niche leadership. Instead of investing in immediate growth, strategize how to cultivate or hire a very strong leader. Tie their comp to growth success but be sure you give them a commensurate budget to fund growth.
A departing leader and no successor.
Unless you’re in the process of recruiting, there’s no reason to invest in growth. Coast or park this niche for now (see above). This scenario is common and it’s precisely why it’s dangerous to have any niches that rely on just one or two people. Another strategy is to package the practice and sell it to another firm who does more than dabble. Your customers and niche experts all deserve to be with a firm positioned to grow in their sector.
Few or no passionate team members on the niche team.
We’ve all seen them: industry groups no one volunteers to work in…they have to be forced. Look first at the leader: are they deeply passionate about the industry? Are they dedicated full-time to that niche or would they like to be? (If not, why?) Are they less than enjoyable to work for? You’ve heard the saying: people don’t quit companies, they quit managers.
Look next at the clientele. Too many? Not enough? Good to work with? Do they treat you like you’re valuable to them? If not, a great niche leader will improve this.
With the right leader in place, employees ASK to work on that niche team.
Limited growth potential.
Consider hard trends** that suggest an industry faces decline or disruption (like buggy whip manufacturing once cars came along). If the obsolescence timeline is within 10-20 years, there’s only one good reason to invest further in growth: short-term gain. Unless you build very profitable services around close-outs or exits—whatever that looks like—it’s short-sighted to continue serving that type of customer. You’re essentially pulling team members and firm energy away from becoming ahead of the curve in other niches.
Can You Overhaul It?
The alternative to permanently dismantling the niche is to rebuild it!
Find ways to salvage parts. Leverage what you have and know into a more viable, exciting, and relevant area of practice. If you study hard trends, let them inform your choices as you decide how to proceed.
The natural overhaul would be taking the current industry and either narrowing its focus or shifting your energy to a related industry.
An example of narrowing focus would be to reduce a general “manufacturing” niche to focus exclusively on “food manufacturing” or “medical durable goods.” Hard demographic trends project a need for 100-110% more food by 2050. And the aging Boomer population is increasing demand for medical services and treatments. Both are very safe bets for now.
I call this the “niche within the niche.” Your goal is to become #1 in serving the narrower niche, or possibly #2. Don’t work super hard to be #3 or lower: that’s the equivalent of RC Cola to leaders Coke and Pepsi. Instead of launching RC… it’s worth considering a different niche focus. The CPA-firm niche playing field is still pretty wide open when it comes to choosing which narrow niche to build a domination strategy around.
*Note: for the purpose of this post, whenever I use the word “niche” I specifically mean a customer’s industry segment—the vertical—NOT a specialty service that you provide. CPAs commonly mix the two up, for example classifying “employee benefit audits,” “SEC audits,” “wealth management,” or “family office,” as industries but they aren’t. They are service lines, demographics or simply characteristics. The industry is who you provide those services to… employee benefit audits or SEC audits are performed for companies across just about any market segment such as food manufacturing, agriculture, or aviation transportation. Private sector would technically be the industry for high wealth customers, with the “high wealth” part being the relevant “market segment” demographic you serve within the private sector. Demographics add another layer to an industry target.
**see the GREAT work of Dan Burrus, the author of The Anticipatory Organization
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