Wednesday, June 22, 2016

Market Strength Matters More Than Services Strength

Give engineers and architects opportunity to brag about their firm and they typically point to its quality work and strong expertise. Invite them to complain about their business and they'll likely mention how it's becoming increasingly commoditized. While they are loathe to admit it, they essentially acknowledge that quality and expertise have become commodities.

A quick Google search reveals that our profession isn't alone in this. Quality and expertise across diverse industries no longer differentiate as they once did. There are exceptions, of course, but they are rare among A/E firms. Quality and expertise are minimum expectations on the part of clients, not points of distinction. Yet many firms continue to tout the strength of their technical services as their primary competitive advantage.

If you want to further dilute the strength of your services, offer them indiscriminately to clients from multiple markets. Many engineering and environmental firms are particularly prone to this. They view the market diversification as a hedge against the ebb and flow of individual market sectors. True, but they sacrifice an important competitive strength in taking that approach.

The best firms I've worked with have a common trait—they're focused on a few markets (though not necessarily exclusively). That's because clients value firms that really understand their business. Ultimately, your mission is not simply to render a specialized service, but to help your clients succeed. You add value to your work when you connect it to satisfying their strategic business needs. But you can't do that if you don't know your clients' business.

In my experience, A/E firms generally make their highest profits within their targeted markets. Conversely, firms that don't have a market focus are usually less profitable (I don't have data to support this claim, only my accumulated observations). Profit and labor multiplier are together reasonable measures of client value. So it's not surprising to me that the firms I've worked with that generated the lowest profits and had the lowest multipliers characteristically lacked market focus.

Yes, quality and expertise are critically important. But market strength matters more than the strength of your services. If your firm is facing increased pricing pressure, slower growth, and declining client loyalty, an honest consideration of the following questions might be helpful: 
  • Are we focused on a few core markets (based on clients' business, not our services)?
  • Do clients within those markets view us as "industry insiders"—active participants within their business?
  • Do we really understand how our clients succeed and the business challenges they face?
  • Does our marketing position us as thought leaders within our core markets?
  • Are we proficient in describing our work in terms of the business results it helps our clients achieve? (check your website and project descriptions)
  • Do we need to increase our focus on one or more of the markets we serve, but don't really specialize in?
Agree or disagree? I'd love to hear your comments about the relative competitive value of market strength versus services strength.

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