There's a confluence emerging for those firms looking to explore new niches, as shifts in the economy, regulations, competition and technology are creating opportunities.

In fact, those "four lightning bolts of change," as consultant Gale Crosley, president of Crosley + Co., describes them, have created an environment that couldn't be better for a niche business. The key, however, is understanding and embracing the commitment required to make it a success.

"We are facing one of the most exciting futures that has so much potential for niches, it's almost unlimited," said Crosley.

Whether it be international work, succession planning, health care, state and local tax service, or another type of niche business altogether, Crosley and many other accounting professionals believe that now is an opportune time for firms to develop a differentiating service offering. But before running out and launching a new service line or catering to a new buyer group, a firm must first know how to go about finding a strategy.

 

LAYING THE GROUNDWORK

Crosley, whose consulting services include helping firms develop niches, said that the first step is to take some cues from Columbo. That's right, the rumpled detective played by Peter Falk in the 1970s TV series of the same name.

Go out and "be Columbo" to find the hot spots and look at the market from the outside in, said Crosley.

Obviously, she is using Columbo to illustrate a point, but the point is nonetheless an important one. When exploring a new niche, a firm must first analyze its current revenue sources to understand how much comes from industries and how much from services, and to see where they correlate. And look at each industry buyer group or market from the outside in. In other words, get into the market and begin the "detective" work.

According to Crosley, look for:

Services to develop, package and drive into the market (do not make assumptions about what a client wants).

Channels of distribution: How do you find buyers and how do they find you?

Targeted self: To whom are you selling the niche and what causes a company to need you?

"If you go into a major metropolitan area and you look at the top 20 firms, my guess is that all of their Web sites will say that they specialize in construction and manufacturing, or whatever the case may be. So building out a niche is about how are we going to differentiate ourselves from the other people who are in this space?" said Jeff Pawlow, chief executive and managing shareholder of The Growth Partnership, a consulting firm whose services include helping CPA firms develop new niche clients.

Pawlow said that he has found success with the "double-barrel approach," or finding how to cross an industry niche with a service niche.

For example, he has a client who does a lot of manufacturing and construction, as do many of its competitors. However, the client also has a good deal of expertise in serving family-owned businesses where the strategy is to transfer both ownership and management from one generation to the next. Seeing a potential niche emerging, Pawlow then worked with the client to find out how many of the local manufacturing and contracting companies were family-owned with multiple generations working in the business. The result - a staggering 342.

"To those 342 companies, we felt that we could make a pretty compelling case that we were the best to meet their needs. So our strategy was all about building the relationship with those 342 firms and we really didn't worry about anybody else," Pawlow explained. "So we felt we could differentiate ourselves and that gave us a compelling message in the market."

 

OVERSEAS NICHES

In the past year, New York accounting firm Holtz Rubenstein Reminick found its own compelling messages to bring to market and launched a medical doctor practice group, a state and local tax services group and a China group. While all three initiatives are clearly important, it's the China group that is perhaps the most significant and has generated the most activity.

Holtz Rubenstein Reminick is a strong auditing firm and, even prior to the launch of the China group, had an international affiliation of firms around the world, including China. However, Frank Candia, the firm's managing partner, said that the firm began noticing an uptick in activity in Chinese companies accessing the U.S. capital market. "We identified that there was a need for a quality, knowledgeable firm to work with those companies to register their securities and on the exchanges, so that is how it began," said Candia. "There has to be a need out there that we see and a need that we feel we are capable of addressing, and we have to feel that we have either the talent internally or we can go out and recruit the talent."

Candia said that the firm felt that it had the talent and knowledge in place to embark on the China initiative, but in order to develop the market, it was important to identify a champion within the firm itself at the partner level.

"Without [a champion at the partner level] it is very difficult to do any new initiative, and that requires somebody who is very interested in pursuing that objective," said Candia, echoing the sentiment of many other industry professionals. Identifying a champion within the firm is essential - and some may argue that it can be one of the most challenging aspects of developing a new niche.

The firm also identified a group of associates within the firm - including several who speak Mandarin - who have the skills and drive to develop the market.

To further develop the group and market its services to potential clients, the firm has met with other professional firms that are servicing the China market, has made several trips to China to inquire about potential strategic alliances, has participated in business conventions and has met with Chinese firms that have experience in taking companies into the public market to let them know of the firm's new China initiative and the services it offers.

"It really means getting involved with the ecosystem and getting our firm out in front of the people who are servicing this practice area and getting your credentials out there, and to also have the talent internally," said Candia, who noted that the firm has recruited a few additional people who speak Mandarin and possess audit skills.

Meanwhile, within the past few months the firm launched its medical doctor practice group, again taking the same approach of looking internally for talent and appointing a champion to lead the effort. Candia said that the medical profession is under increased pressure by regulators in terms of insurance reimbursement and operations, and the firm is seeing a greater tendency toward merging among medical groups in an effort to gain more leverage with the insurance companies and to bolster awareness in the community.

"There's a need for advisors to help structure the transaction and to work with these larger practice units after the transactions, because they become a much more sophisticated business unit," Candia explained. "We had a lot of that talent that a larger, professional organization may need to help them be successful."

These groups, including the new SALT group, are not separate reporting entities, but rather practice areas within HRR with financial goals and budget expenses where it makes sense. In fact, this is typically how a niche business is structured.

The Growth Partnership's Pawlow added that while there might be a unique situation where a niche is so powerful that it spins off to form its own separate entity, that's not the norm. "A firm thinking about starting a niche wouldn't even consider that," said Pawlow.

 

SALT BLOCS

Aside from international and health care regulations, another area of opportunity is state and local taxes. States and municipalities are becoming more aggressive in pursuing business taxes, making it crucial that businesses remain in compliance, while at the same time not overpaying.

Seeing a need to help businesses, Alabama-based accounting firm Barfield Murphy Shank & Smith recently formed a state and local tax services group, which offers businesses a group of tax and audit professionals to assess their current situation, navigate them through a state or local tax audit, and keep them in compliance.

The BMSS SALT Group began taking shape around May or June of last year, and at the end of 2010 hosted a series of state and local tax seminars on such topics as sales tax, business licenses and audit preparedness. The seminars were not only educational, but also served as a marketing tool, as about 20 percent of the attendees were prospective clients, explained senior manager and SALT Group leader Karen Poist. Going forward, the group may host industry-specific seminars focusing on such areas as nonprofits or construction.

Among the services offered is what the group calls a "SALT Scrub." BMSS will look over the books of a prospective client for potential exposure and will do an overall analysis based on the data. Based on the findings, that client may then engage the group again to perform additional work to address any concerns the analysis may have uncovered.

Among the SALT Group's successes to date: Through audit representation on a Mississippi Contractors Tax audit, the state issued an assessment of $120,000 to a client. BMSS challenged this assessment based on the facts and circumstances surrounding the contract work and, with the assistance of a Mississippi attorney, the assessment was removed and the audit resulted in a $20,000 refund. In another scenario, BMSS assisted on a sales and use tax audit with a preliminary assessment of more than $300,000 and found that only $11,000 was actually due.

 

CHALLENGES AND OPPORTUNITIES

When asked about the biggest challenge in launching a niche, Poist said it is important to make sure you have the knowledge base in place, as well as the force to keep the niche business moving.

Rob Carmines, a partner of Carmines Robbins & Co., narrowed his sights on serving the dental industry after he had an "epiphany" in late 2010.

"It is a synergy of a number of different technology advances that are enabling us to do something that we weren't really able to do before, and that is to replace what most dentists have, which is a [person] who comes into their office to pay the bills for them once or twice a week," said Carmines. "We are able to take over that without having to get into our car and go to the dentist's office."

Through the use of hosted accounting software, Carmines Robbins can remotely process a dentist office's accounting and bookkeeping, and can reconcile their bank accounts and pay bills in a secure manner.

Why dentists? "A dental office is great because they generally have a pretty good income and it's usually pretty stable. Dentists do not like having their staff handling their accounting and bookkeeping, and certainly not their payroll," said Carmines. "Another thing is that the software for running a dental practice does a really good job of knowing when you were last in, when you're due next, which procedures you've had and what teeth they need to keep an eye on, but what it does a horrible job of is doing bookkeeping."

For a value-added service, Carmines is in the process of creating a database to provide ratio analyses for dental offices, so that, as part of the service, they will receive a practice report card.

To promote the niche, Carmines is running three radio ads aimed at dentists and orthodontists, and may speak at local dentist meetings and attend the state dental convention. "This is a market that we can do very well in and it's a market that we are currently already providing valuable services, and we are able to do more, but we just have to find a way to let them know it," he said.

Once a firm has found its differentiated message and has identified future clients it wants to serve, it is time to begin "sewing the seeds of discontent," explained Pawlow.

"Identify who your future clients are, create a positive first impression, get their permission to keep in touch on a regular basis and, in the short term, we want to be No. 2," said Pawlow. "Once you're in that No. 2 position, you can do all kinds of things, and I call it 'sewing the seeds of discontent.' You want to sew the seeds of discontent in the relationship they have with their incumbent accounting firm." He noted that this process gets the future client thinking that they might be better served switching to your firm.

Clearly, launching a new niche is no small feat, and it won't happen overnight. A commitment is critical and, according to Pawlow, firms should plan to dedicate three years to developing and growing the niche. "To say you are going to go for a niche and only give it a year, you might as well not do it," he said.

It is also important for a firm to set goals, and then measure those goals. According to Holtz Rubenstein Reminick's Candia, "A firm has to realize that this is an investment and you can't expect immediate gratification. You have to be practical and reasonable in your expectations."

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