When starting a professional services firm, it is smart to tailor the firm’s service offering to a niche. That niche is represented by a highly-targeted profile of an ideal pool of clients and their specific needs. A common mistake that founders make is attempting to do too many things for too many types of clients. This usually happens because founders are hungry for any type of revenue that can sustain the firm. But that short-term revenue grab results in long-term disarray. Over time, firms that are spread too thin will always underperform.

Why Focus?

There are several reasons why focusing on a niche is important for new professional services firms:

• Clients hire experts. Prospective clients’ expectations aren’t complicated – they’re looking for a high-quality and timely service at a fair price. Clients rightfully assume that the quality of the service will be higher if the firm is laser-focused in their specific area of need. For example, if a company needs a law firm to assist with its business agreements, it’s more likely to hire a contract attorney than one who handles contracts in addition to divorce settlements and personal injury cases. Expertise is closely associated with specialization. As a specialist, you will have a higher “win rate” on target opportunities than a generalist.
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• Messaging is clearer. It is important that prospective clients quickly understand what your professional services firm does. Many companies use Google to find and evaluate potential firms to handle their needs. Since buyers can find dozens of firms to evaluate within a few minutes, they are quick to dismiss firms that don’t seem like a good fit. If someone can’t clearly understand what your firm does after five seconds of glancing at your website homepage, you’ll likely lose that person to the dreaded “back button click”. By focusing your messaging, prospects can quickly understand what you do and whether you are a fit for their needs.
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• A reputation of quality. The quality of the services and deliverables that a firm produces will be higher when the firm is focused. Focus brings precision and excellence. When a firm focuses its service offering, it builds a reputation for high-quality work and that reputation permeates the market over time. Referrals from existing clients will be more common, and the firm will also see more “inbound” leads than its rivals.
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• Utilization is better. When firms have multiple service lines, there are usually employees within the firm who focus only on a specific service. This means the supply and demand for services has to be managed across multiple utilization “silos”. One practice might be running at 100% billable utilization while another is struggling. Employees in one practice might have zero applicability to the delivery of services in another practice and thus drag down overall utilization. When firms focus on a single niche, managing utilization to a desired level is much easier.
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• Operations are streamlined. When the service offering of the firm varies, the operations of the firm must also vary. The firm’s delivery methodology and deliverable artifacts will likely be different per each service line. Also, the promotional materials, sales proposals, presentation templates, white papers, webinars, and the like will have different content. All operational aspects of the firm, from recruiting to service delivery, must vary in order to support the distinct service offerings. Variability creates unnecessary complexity.
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• Stress is lower. When a firm focuses, it performs more predictably. When it performs predictably, there’s less stress on the entire company (especially the leaders). Lower stress creates a better environment in which to spend your time.
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Characteristics of a Good Niche

A good niche is one that will support the planned mid-term growth objectives of the firm’s leaders. Since those objectives are personal and vary greatly from one company to the next, a perfect niche for one firm might be a terrible one for another. Founders must evaluate how the niche will support their growth objectives over the next 3-5 years.

A good rule of thumb is that you want a niche that is small but growing. When a niche is small, it usually means that there aren’t a lot of competitors in the space yet. The lack of competitors will give your firm time to establish itself as the leader. You may even be able to define the industry terms that will become ubiquitous over time.

But, if a niche stays small for too long, it might not be big enough to support your growth aspirations. That is why the growth rate of your niche is critical. When a small niche is growing, the leading providers in that niche generally ride the wave of market growth. Those established firms in the burgeoning space become the providers of choice. As new competitors enter the space, your firm will enjoy the leadership position, which was achieved by being a first mover.

Finding a Niche

There are several ways you can narrow down your choices and select a good niche. Generally, your niche will be created by focusing on a very specific target customer profile. For example, instead of providing generic “accounting services” to consumers at large, maybe you provide tax advisory services to high net worth professional athletes who earn money in dozens of states during the year. By learning the tax laws of each state and the legal terms of professional sports contracts and collective bargaining agreements, you become the “go to” tax expert in that niche market.

When looking to create a niche, there are some key considerations. Note that you can develop a niche by combining several of the tactics below:

• Vertical industry. Possibly tailor your service offering to a specific industry (or industry sector). For example, your management consulting firm might focus on helping brick-and-mortar retailers compete in an increasingly Amazon-dominated world.
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• Horizontal domain expertise. Consider providing services focused on a specific function that exists across multiple industries. For example, you could provide human resource legal advisory services to help clients develop employee handbooks and employment contracts that are in compliance with all state and federal regulations.
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• Client size. Focus the service offering on a specific size of customer. This could range from Fortune 500 companies to tiny startups. It is very hard to serve all sizes of clients because their needs vary widely with the headcount.
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• Service type. Rather than provide all of the typical services that are common with your firm type, you could focus on one service where your firm can truly shine. For example, instead of launching a generic marketing agency, narrow that down to a branding agency that exclusively focuses on corporate identity development for large consumer-focused companies.
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• Product expertise. Focus your services around a specific third-party product. If you are an IT services provider, instead of being a generalist, maybe you focus on implementing a specific high-growth product such as Twilio or Workday.
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A Niche can Expand

As your firm matures, it may make sense to expand beyond the original niche. Again, this largely depends on the growth aspirations of the firm’s leaders (and Board of Directors). If it becomes clear that the niche market won’t satisfy your growth goals, expanding from the initial niche could be required. You should only do this once the firm has the people and processes in place to yield consistent business performance. Prematurely expanding the firm’s focus can create chaos and disastrous financial results.