Which industry niches* should we grow? Are we true specialists in an industry? How do we prioritize our niches for human and monetary resource allocation (staffing, training, marketing, recruiting, etc)?
To help determine the best answers, a friend and I decided to come up with a litmus test of sorts to help you vet:
- Are we currently just dabbling in a niche or do we demonstrate true specialization?
- Is our niche too “people dependent” (if someone leaves, is it at 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 more realistic in our growth expectations for a niche?
With the collaborative brain power of my good friend, I’ve put together a tool: the Segment Scorecard (spreadsheet) to guide you as you assess and compare the health and viability of your firm’s current industry segments. Here’s how to use this information and tips for how to communicate about it.
I use a freeway analogy (explained below) so these are factors to consider when weighing which segments to accelerate and which to just “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 are unable to build without someone a manager or above who is extremely passionate and able to be fully dedicated, and at least moderately knowledgeable. Hard stop until such person is in place. If you’re considering hiring that person, make sure there is strength in most other areas first.
PEDAL TO THE METAL
I often use the “freeway” analogy because it creates more comfort with the concept for those whose industries are not on the immediate “to accelerate” list. As firms embark on strategic planning and have to make choices about where to allocate their limited resources, I have them envision each industry as a separate car on a freeway. All the cars are presently moving, some a bit faster or slower than others. The desired outcome is a realistic CPA-firm growth plan that’s considered which 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 1 or 2 cars should “floor it” AND be absolutely clear that this doesn’t mean a full stop for the rest… it means the rest continue to cruise along at their appropriate relative speeds until the it’s time to let the accelerated cars to cruise on their new-found momentum, and allow some other cars to surge ahead.
When strategic planning which involves a large number of firm owners and decision makers, the typical scenario is that everyone feels his or her car is one the firm should put heavy resources into and they can view receiving lesser resources as a lack of confidence in the practice leader or lack of commitment to the industry. In many cases, there’s been heavy (and heated) discussion about profitability or lack thereof when talking about resource allocation. Profitability is important, but there’s much more to consider. Let people see the totality of considerations and where their industry fits in the firm’s growth plan.
Whether flooring it or cruising it, each industry needs a growth plan. Whichever category the industry falls into, let the factors inform your plan. There will be no perfect niche.
The factors within this scorecard create visibility and awareness around potential improvement areas. Consider the first scorecard as a baseline against which the industries will benchmark themselves in the future. Design growth plans to include actions that elevate the industry across these factors: heighten expertise (thought leadership and industry involvement) and breadth of relevant services (R&D, CPE), inspire passion and leadership, improve internal economic performance (usually by both pricing better and managing to a better-defined scope!) and increase the representative client base. Doing these things puts the niche well on its way to a strong enough foundation for the niche to “floor it” in the future.
PARK IT OR OVERHAUL IT?
In strategic planning, the goal is seldom to pull a car off the freeway and park it, but sometimes a breakdown can happen whether you intended it or not. Periodically, it’s wise to consider early on (before the breakdown) if a car should be garaged. Indicators for permanent removal might be: no one at present to commit to leading it (and being both passionate and accountable for leading it), or no successor for a soon-to-retire leader; a shortage of team members to serve the niche with appropriate passion (major turnover among CPA firms is underway as I write this); or other hard trends** that indicate a niche is facing decline or disruption (like buggy whip manufacturing once cars came along).
The alternative to permanently dismantling the niche is to rebuild it! Is there a way to salvage some parts and leverage what you have into a more viable, more exciting, and more relevant area of practice. Or perhaps narrow the scope of the industry served for example reducing “manufacturing in general” to “food manufacturing” or “medical durable goods” knowing that demographic hard trends are excellent in America for both of those categories of manufacturing.
*Note: for the purpose of this post, whenever I use the word “niche” I specifically mean a customer’s industry that you serve, NOT a specialty service that you provide. CPAs commonly blend the two such as classifying “employee benefit audits,” “SEC audits,” “wealth management,” or “family office,” as industries but they are service lines. 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