Beyond a robust economy, where does growth come from? In my experience, most firms seek growth by moving into new markets. But the most successful firms I've worked with serve only a few (typically 3-5) core markets. Large firms, of course, can serve many more markets and still offer substantial resources devoted to each. Small to mid-sized firms, on the other hand, are wise to concentrate their more limited resources on fewer markets.
Research supports this approach. From
strategy guru Michael Porter to professional services consultant
extraordinaire David Maister to Hinge Marketing's study of high-growth firms,
the advice is consistent—it's better to go deep than broad.
Professional service firms that focus on a few markets not only grow
faster, but are generally more profitable. This has been evident among
the small to mid-sized firms I've worked with over the last 25 years.
Market-focused firms commonly have profit margins that are 2-3x that of
How can this be? It's really pretty simple:
Knowledge of the client's business creates added value. Many technical
professionals seem to think that it's how much they know about their own
business that really matters. But from the client's perspective, they
find greater value in our services when we can tailor them to their
specific needs, which is possible only when we understand what they do
and how they succeed. Market specialization also leads to better
consolidation of internal resources and competencies, leading to greater
There are, of course, some advantages to market
diversification. Specialization can make you vulnerable to a downturn in
a market sector you're heavily invested in. Thus many firm principals
consider diversification a less risky strategy than focusing on a few
markets. Even in a strong economy, different markets grow at different
rates. Market diversification may elevate your chances of being in the
right place at the right time.
But market diversification has its
shortcomings. Many firms boast of their breadth but offer little depth
in terms of client sector knowledge, specialized expertise, or
marketplace reputation. Diversified A/E firms often face organizational
hurdles as well. It's harder to pool resources, build strategic
consensus, collaborate across business units, avoid turf battles, or
cross sell services when spread across multiple markets.
theory market diversification offers greater flexibility to respond to
shifting marketplace trends, I've seen this ability frequently hampered
by internal competition. Concentrating management attention and
resources on a promising market sector typically means diverting it from
one or more other sectors. Many firms find this difficult to do, and
their diversity ends up constraining rather than enabling their
So let me offer some advice to those firm leaders who recognize the need for strengthening their firm's market focus:
Pick a few target markets to focus on strategically. Your
selections may be guided by a number of criteria—current revenue,
sector growth potential, firm experience, staff expertise, etc. This may
or may not involve choosing to exit other sectors—which is worth
considering—but I'm not suggesting ignoring other markets on which you
depend or compromising your financial performance. The intent is to give
special attention to positioning your firm as a key player
within your target markets (which are likely defined both by client type
and geographic area).
Assemble market sector teams.
You want to assemble individuals who will form your "centers of
excellence" for each target market. Each team should have a committed
leader to keep the effort moving forward. These teams will be
responsible for driving the activities mentioned below. Give them this
particular charge: Determine how to increase your firm's market share
within your target markets. Don't merely settle for a "growth share" in a
growing market; that's not a strategy for sustainable success over the
Do your research. Client and market research seems to be an area of weakness in most A/E firms. As I noted in my previous post,
firms that do frequent research grow at a much faster rate and are more
profitable. In this case, developing your credentials within your
target markets requires considerable knowledge about those markets and
key clients. Adequate research is essential.
Actively participate in relevant trade associations. This
involves more than attending meetings and conferences; you want to
contribute to the organization's mission. Committee or task force
participation is strongly advised, especially where you can help address
technical, legislative, or regulatory issues of importance to that
industry. This positions your firm as an advocate for clients in that industry, not just another firm seeking to do business with them.
Target marketing efforts on those core markets. As
I've written about previously in this space, effective marketing is
that which serves clients. Deep understanding of your clients' business
enables you to better serve their needs and interests through your
marketing. Don't make the mistake of focusing on promoting your firm's
technical services or projects. Instead, address those issues of
greatest importance to clients through a content or inbound marketing
strategy. This helps establish you as a thought leader within your core markets.
Set up a system to share market information. You want to build organizational competency
within your core markets, which means sharing the information and
insights you accumulate through research and experience. Many firms
default to simply posting this information on their intranet, but that's
far too passive an approach to facilitate knowledge sharing. Instead
you want to schedule regular meetings or conference calls for your
market sector teams to share this information.
As I often tell
firms, there's a big difference between serving a market and being
viewed as a key player in that market. How do you think clients in your
target markets think of you: As an outsider offering services to them or
an insider working for the betterment of their industry? Yeah, it takes
a considerable effort to position your firm in the latter category.
That's all the more reason to focus on a few key markets.