Eight Vital Lessons in Niche Building
Building a niche or a boutique business within a professional or financial services firm is one of the best ways to grow a business. Learn the eight critical lessons to be learned from an electronics giant that is one of the most innovative companies in the world and how they can guide small to mid-sized firms.
I have written a good bit lately about the importance of niche building in growing a professional or financial services firm. I have also written about the value of building micro-niches in adding products and/or services that bring in premium pricing. Today, I want to be certain you understand that building one niche is not enough. So please consider this your invitation to join the niche of the month club – or the niche of the quarter, or the niche of the year club.
The firm that will be poised for the largest growth and the greatest increase in profitability will be the firm that has developed a growth strategy that includes regular “launches” of new niches within their business competencies. And, within each niche, there should be opportunity to also shine a spotlight on a boutique business within both the niche and the firm.
It is important to understand that you will not be able to build niches out of air. You need a strategic plan for identifying, researching, defining, launching and marketing each niche thoroughly. If you plan to charge premium pricing, you must also look at more than the skill or knowledge of the niche and its needs. You must also think about how you will make the niche special to clients and treat them different from the average client.
A couple of weeks ago I read an article in Fast Company about a Dutch company that has developed a stellar approach to researching and building niches. The article is about Shapeways, a new company that emerged for the niche incubator of Koninklijke Philips Electronics. Shapeways specializes in custom printing and rapid prototype production. For businesses that depend upon high-quality prototypes, purchased in small quantities and created quickly, to sell ideas and products into their marketplaces, this capability makes dreams come true.
At the moment, my interest is less in Shapeways than in the innovative thinking within Philips that created the incubator for the business. After reading the article, I spent some time on the Philips website and learned more about this innovation process. In simplest terms, Philips has built three “incubators” devoted to healthcare, technology and lifestyle. The charter for the 200+ employees in these incubators is to identify new growth opportunities for the company and create unique value propositions that help business units build new business with them.
The purpose of the incubators is to investigate ideas, see if they can add value to existing products, build the products and services customers want and need. In essence, the incubators exist to explore the market for new ideas, figure out how to make them work, and then hand them over to the sales and marketing folks to sell the new business. Once the incubators produce ideas believed to be marketable, there is testing. If the ideas are successful in test markets, they are refined and rolled out to customers. If the ideas are not successful in test markets, they are dropped. If the idea fails the process allows for it to be abandoned without taking time from other products currently generating revenue for the company. If the ideas succeed in the tests, the company evaluates and decides whether to add the new product or service to the existing business units or to create a new business unit. If the ideas are very successful, the new product might become the basis of a new company that is spun out, although Philips would continue to hold a majority share in the new company.
There are some important lessons to be taken from the way Philips approaches innovation:
1. There must be both a plan and a process.
2. There must be a safe environment in which to explore and investigate the viability of the idea or innovation.
3. There must be a readiness to act on promising new ideas.
5. There must be an expectation that ideas and innovations will emerge that will positively impact the future of the company or firm.
6. Innovation must be responsive to customer or client need and must provide value.
7. The pace for introducing new niches must match the internal capability to complete all preparatory work thoroughly and match client need.
8. Every niche building attempt will not be successful. This is to be expected. Your strategy should include when and how you will decide to drop an idea and move on to the next opportunity. Learn from the failure and use the new knowledge as you move forward.
My invitation is for you to join the niche of the month club. Your firm might not be large enough to be able to manage your revenue-generating work and develop new niches at that pace. That is okay. Just decide how many niches you believe your firm can launch in a year. Then build the processes and the expectations to make it happen.
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ABOUT THE AUTHOR
David Wolfskehl is President and CEO of The Practice Building Team, a company that helps professional and financial services firms accelerate their growth. In addition to numerous articles, David has written two reports available for download, "How to Build Your Practice in 2010" and "How to Quadruple the Value of Your Firm in Three to Five Years." Watch for his new e-book, "Build you Business by Building a Niche," due out later this month.