A universal attribute of your buyer markets, whether industry or nonindustry, is their dynamism. One year steel manufacturing boasts ideal market conditions, while the next year that favorable position has shifted and restaurants are in ascendancy. For growth-minded CPA firms, it's essential to constantly assess the conditions of the markets you contemplate entering, or in which you are already active.
There's a strategic imperative at work here. Since not all markets are equal in potential at any given time, you'll want to deploy your limited resources where conditions are best. Some markets will flourish with random seeding and occasional watering. Others will struggle to grow despite fertile soil and abundant sun and water. Why invest time and resources into the slow grower when you can have a thriver?
A crucial starting point is how you define the market. For decades, the railroad industry was the undisputed leader in the transportation sector. In the 1910s that dominance faced an emerging threat from the upstart trucking industry; within 20 years trucking had become a significant force.
Despite the encroachment, the railroad industry continued to define itself as trains, rather than as a provider of ground transportation. Had that happened, the railroads might have expanded into trucking and come to dominate a much larger, more diverse sector. Examples abound in the graveyard of extinct companies and markets.
What are the best indicators of strong market conditions? The No. 1 indicator, all other things being equal, is market size. This is defined as how many companies are in a given market, the notable exception being a just-created market. The same holds true for business-to-consumer markets — how many individuals populate that market as it's defined. Everything else pales in comparison. You can later determine the addressable market, which is how many buyers might buy your service or product. But the first step is to determine how many fish are in the pond. Larger markets have significant advantages, so when comparing market conditions, start with raw size.
A client firm was casting about for industries with the best conditions. Our research revealed that the first market they had in mind had thousands of potential buyers, while the second had a whopping 154. This firm had vetted the industries they wished to serve but failed to do the math. When the numbers suggest you're setting yourself up for limited success, it's time to rethink your strategy. Rather than consider orthodontists in Des Moines, for example, think about general dentistry practices across the state of Iowa.
After size, the second most important consideration is competition. Who else is out there doing something close to what you want to do? Are you knocking on the door of an industry where a single gorilla player owns the market? Or have you identified a sizable market that has not yet attracted the interest of other CPA firms?
That's not all
Size and competition are at the top of the list, but they're not the whole list. You'll also want to understand other dynamics in a market. I once had the idea to offer a sales training program for CPAs. Coming from a big-tech background where sales is the mother's milk of success, this sounded like a good idea, until I became aware that at the time, sales was a dirty word in accounting. The single gorilla player, promoting the concept of rainmaking, had already captured the market. That awareness influenced my consulting direction from that time forward.
Other factors influencing market conditions include economic health, relevant regulatory changes, and new technologies, either existing or anticipated. Think too about the degree of sophistication in a given market. If you're offering an AI-powered predictive analytics service for financial forecasting, you'll have little success selling it into an industry whose people can barely find the on button on the coffee machine.
Consider the appetite for innovation in an industry. If that's missing, you could face a daunting educational curve that will lengthen your sales cycle, frustrating everyone involved.
Finally, look for either saturation or absence of a service. Is there a market hole for you to fill? If there's a Mexican restaurant on every corner, why open a taco truck in the neighborhood? If you discover an abundance of CPA firms that can deliver "plain vanilla" 1040s, it makes little sense to put up a similar 1040 prep service, until you can defend a unique value proposition.
Carefully compare the conditions of various markets to assess that will give you relatively smooth entrée, or present obstacles at every turn. Once you've selected the best markets, it's time to identify the precise targets, services and channels that will bring you market dominance!
