A niche, the dictionary tells us, is "an ornamental recess, usually in a wall, that holds a statue or other decorative object." But in recent years, niche has taken on a more generic meaning as a suitable place for someone or something. In accounting, niche has become synonymous with specialty. accounting firms are routinely advised to build and grow niches in areas such as international business, health care, the nonprofit sector, etc.
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I've been a strong proponent of specialization, advising firms to move away from a commoditized "something for everyone" model. The problem is that, as they're currently envisioned and pursued, niches may limit your thinking about growth.
There are three reasons: first, the term "niche" is often too narrow and self-limiting, excluding major revenue segments like audit and tax; second, many times nobody owns the financial success of each; and third, firms are mired in tactics, rather than strategy.
In its place, I propose redefining niches to revenue streams or revenue segmentation. These are inclusive of all chunks of revenue, enabling specialized growth across all service lines and industries, and giving you the firepower to grow your firm.
NICHES ARE NARROW, SEGMENTS ARE BROAD
Case in point: Leaders at Firm A tell me that they are eager to establish niches in litigation support and risk management. Fine, I say. But growing two niches (any two niches) is not sufficient to grow your entire firm.
"What about audit and tax?" I ask. They may not be commonly considered niches, but they are key sources of revenue that cannot be ignored.
I introduce the concept of revenue streams by helping Firm A create a simple spreadsheet. Rows represent service lines (assurance, small-business services, tax, consulting, etc.) and columns represent industries or other buyer groups (banking, hospitality, construction, international, etc.).
The resulting totals are revenue streams or segments, showing the amount of revenue currently generated by segments, both in dollars and as a percentage of the firm's overall revenue. Also - and importantly -- there is a total row and total column to enter the anticipated percentage growth for each segment. You know where you've been and where you're headed -- a strong start.
The spreadsheet also has a column for the name of the firm leader who will champion each revenue stream. Linking revenue and profitability to individuals addresses another problem with niches, which is that nobody is responsible for their financial success.
Too often, niche building is seen as an extracurricular activity -- a good thing to do when you have extra time, but no one's real duty.
Assigning a leader introduces accountability, which is a start. Otherwise, partners sit around a conference table nodding in agreement that construction or education are niches worth pursuing. But little gets done.
As intuitive as this sounds, it's foreign thinking in most firms. I recently sat with a partner who had been assigned to lead a particular segment. My task was to help him dig into his segment and identify pathways to growth.
The first question I asked was how much revenue his segment had generated in the previous year. (You can't grow unless you know your starting point, right?) To my surprise, I was met with a blank stare. He hadn't a clue. Here's the takeaway: Without a solid understanding of past performance and a strong segment leader at the helm, meaningful growth is not likely.
STRATEGY TRUMPS TACTICS
Finally, growing revenue and profit is all about moving away from tactics and toward larger strategies.
A typical tactical approach is to "do things" like attending contractor association meetings and writing articles for construction publications. But how do you know that you're speaking to or writing for the buyer groups who want what you've got to sell -- or that you're speaking or writing about what they want to hear?
There's nothing wrong with these tactics. But they must be part of a larger strategy whose purpose is to align likely buyers with services and channels of distribution. The process is rooted in a thorough financial analysis of each revenue stream, and driven by a deep thirst for knowledge and nuance.
This approach is part of a comprehensive growth model. Rather than pluck a niche or two from the air, I recommend that firms take a more holistic approach, growing each service line and industry with its own unique strategy.
Sustainable growth will only occur when you study where your firm has been and become an expert in where you want it to go. A niche visibility program won't get you there, but a strategic revenue segmentation approach can!