Niches aren't dead. It's just that fewer and fewer firms are "building them." Most are now buying them.

The reason that the "build vs. buy" question is seldom considered is that firms, for the most part, have had terrible experiences starting niches from scratch.

Despite the concentration of person power and marketing muscle, the learning curve is usually never really surmounted and the return is generally negligible. Typically, a partner's time was freed up to obtain a desired certification, CPE courses related to the specialty were taken, a market plan was developed, seminars were offered to potential clients, and trade shows were attended. The net result was that other partners questioned why the firm ever got into the niche in the first place.

The only ones that were really successful building niches were those where the function seemed to mushroom organically. The firm would notice a concentration of clients in a certain industry or professional group that it was particularly interested or adept at serving. This mini niche would then grow into a fully blown one, primarily with the partner having the most clients in that industry acting as the niche's champion.

With an overall poor track record for the "build" route, it should come as no surprise that the "buy" route is prevailing today. You are seeing more and more general practice firms with a limited number of niches acquiring the smaller boutique firms, which have been proliferating since the consolidators entered the fray.

These boutique firms generally have seasoned niche champions with excellent reputations in the industry or professional group that they are serving. Also, the acquiring firm gets a niche that is up and running immediately, most with a substantial client base. Equally important, cross-selling opportunities abound. The boutique firm's clients can benefit from additional service offerings by the larger firm.

One managing partner of a regional firm illustrates this concept. The firm acquired a smaller firm that specialized in the hospitality industry and had a number of restaurants as clients. The managing partner reports that it was quickly determined that many of the restaurants could benefit from advice on cost segregation for their depreciable assets. It was a win-win situation for the clients obtained substantial tax savings and additional revenue was generated for the new, combined firm.

These types of good buys are why firms are basically saying good bye to building niches.

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