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Further

How to become a niche agency – PART 2

The importance of niching

My last article on niching was the first in a series. I had some great feedback on how to become a niche agency and hopefully, some of you are returning for Part 2. In case you missed it, find Part 1 here.

As you can tell, I’m an advocate of agencies’ niching their offer. It’s always been a viable strategy, but the market is more suited to specialist players than ever before. There are far too many generalist agencies and even more generalist digital agencies. I except, however, that the decision to niche is hard and the ability to deliver a niche offering is even harder.

In my last piece, I focussed on presenting the case for why marketing agency owners should niche their businesses. In this article, I’m going to explore some of the mistakes that people make. I’m then going to explain what niching really means.

We all make mistakes…

You’ll not be surprised to hear that the first mistake I think people make when niching is they don’t do it at all (or at least they don’t do it properly). Here are some other common mistakes I see when people are considering niching (and how to avoid them).

  1. They don’t go far enough – They consider focussing on a few industry sectors as niching. To make a difference and be transformational, niching your agency has got to feel uncomfortable. If it’s in your comfort zone, you’re not going far enough. Specialising in Sports Marketing is not a niche. Specialising in marketing football clubs is getting there.
  1. They believe that the niche is the entire market – Your chosen niche is just your target market, it’s not your total market. Other clients outside or on the periphery of your niche may choose to buy your services. N.B. Rest assured they will (!)
  1. They consider only industry sectors – When people think of targeting a niche they usually focus purely on industry sectors. There are many nuances and ways of cutting niche propositions. For example, you might choose to focus on clients that want a specific result (regardless of their industry).
  1. They consider it a marketing comms or worse a cosmetic exercise – Niching must establish a change in your entire agency. If it’s just a few words on your website it’s not going to achieve what you want it to.
  1. They don’t do it early enough in the agencies life-cycle – If you’re a young agency and you’ve survived the first year in business, now is the time to be thinking about niching.
  1. They don’t see the wider benefits – Niching is not just about winning clients and growing revenue it’s about developing expertise, sector knowledge and a brand.
  1. They try to be too unique – We’re not looking for unicorns here. Differentiation is the goal, not complete uniqueness. If you try too hard to be the only one in the market then you’ll never find that elusive gap or make the decision.

Niching is Positioning

As I explained in my last article, niching is not something to be afraid of. It’s in essence choosing and achieving focus. The tighter the focus the better. It’s the ability to appeal more intensely to a smaller group of clients. In a highly saturated market, it gives your agency an instant competitive advantage. You become an expert in your field.

More importantly, niching is just another way of looking at market positioning. Many of you will have worked with a crosshair positioning map where brands are placed on the axes relative to their positioning in their market. BMW as premium drivers’ cars versus Ford as a more mainstream functional vehicles for example.

Put simply, positioning is determining the distinctive place that you want to occupy in the market, relative to the competition and in the minds of your target customers.

The most effective positioning lives at the intersection of relevance (fit with your customers’ needs) and differentiation (the difference between your business and the competitors). 

Whilst most agencies use this as a tool for supporting their clients, many fail to give it a second thought when thinking about their own businesses. Most agencies place themselves firmly in the centre of the crosshairs. Wanting to deliver everything to everybody.

If the issue of positioning is talked about within agencies, it’s usually thought of as a marketing problem or activity. The outputs are usually the fabled crosshair model, a positioning statement and maybe even a couple of options for straplines.

Positioning is often treated as purely a marketing concept. In reality, it’s more fundamental than that, it’s about your business model. It’s not just a marketing decision, it’s arguably the most important business decision you’ll ever make.

Finding your niche positioning

You can spend hours analysing the market, your competitors, the economy, trends and/or trying to predict the future. Some of this is useful, but it rarely uncovers a clear niche which everybody in the organisation subscribes to.

As with many things, I find starting with the end in mind is the best approach. What is the outcome we are trying to achieve? I also find a template or formula saves time and works well too.

A niche positioning is of no use if it is not captured and communicated well. The way we communicate our positioning is through a Positioning Statement and/or Value Proposition. 

This is the outcome we are trying to achieve.

 

The Value Proposition and Positioning Statement

Almost as important as finding your niche and committing to it, is communicating it.

As poor as many agencies are at targeting customers, they usually find similar challenges in communicating with them.

The process of moving from the language of “award-winning team of committed individuals that specialises in X, Y, Z and A, B, C” is a big hurdle. It can be helped by summarising the positioning of your agency in a Value Proposition or Positioning Statement.

The terms Value Proposition and Positioning Statement are often used interchangeably. I think Value Proposition is a more modern term (I certainly don’t remember it from my degree!)

Technically there are differences:

Value Proposition (VP) – A short compelling statement that describes what customers can expect to receive by using a product or service.

Positioning Statement (PS) – A similar statement to the VP, but with more of a focus on how your brand performs and what advantages you have over those of a competitor or competitors overall. And why these differences matter.

Crucially both focus on benefits (to the customer and over the competition respectively). This is important as so much marketing comms from marketing agencies focuses on features not benefits (how many awards won, people employed, number and type of services etc).

You can have both a VP and a PS of course, but I prefer to keep things simple. I also prefer to focus on the Value Proposition. I believe marketing agencies spend too much time looking inward and/or comparing themselves to other agencies. Bizarrely this results in most agencies looking and sounding the same. The PS tends to fuel this a little.

A VP is more client-focused.  I like the fact that it zeros in on what problems clients have (both from a brand and personal perspective) and how your agency solves them. you need to know the problems and you need to know how you solve them and how effective  you are at doing so.

Clients, like all customers, are most interested in what you can do for them. They’re not bothered about your view of why you’re better than alternatives. That’s for covering later in the sales cycle (if it’s necessary at all).

 

A formula for success

A quick Google search will reveal many formulas and templates for creating Value Propositions. 

I like to use this version:

  • We are for…(who your target clients are)
  • Who are dissatisfied with… (ideally the clients’ problems but could also be current alternatives to your agency)
  • We…(what you actually do and deliver – Tangible Benefits and Logical reasons to believe)
  • By…(how you do it)
  • Because…(why you do it and what you believe in – Emotional reasons to believe)

Practice what you preach

If you complete the formula above you will end up with a list of bullet points. You can then create a paragraph of text if you wish.

In the interests of showing an example and to prove I try and take my own medicine I created the following for Beyond Noise:

We are for ambitious joint-owners of established independent marketing agencies who are between 10 and 50 people. They are dissatisfied with the performance of their business (but want to grow not exit). We provide growth advisory services including business strategy, marketing strategy and performance optimisation. We do this through mentoring agency owners and their senior management teams. We believe that enjoying the journey of growing and running a profitable agency is as important as an exit.  We are also keen to promote gender equality in the sector and are particularly keen to work with female agency owners.

 

This is by no means perfect and it will evolve over time. I really want to niche further into a specific type of agency. For now, though this has really helped me to focus on my niche and sell my proposition.

The words are chosen carefully. For example, the people I want to work with must be ambitious (they want to make big changes). They must want to grow and not be desperate to sell (yet). They are ideally joint-owners (they get more clarity and traction, and I get more satisfaction, from working with partnerships than I do with sole owners).  I’ll not go into further detail as this is not my point.

The real question is can you describe your agency’s positioning in these terms?

 

Next Time…

In Part 3 I’m going to unpack the Value Proposition formula above and give some examples of how I’ve applied it to agencies and how you might do the same.

If you don’t want to miss it, sign up for my email updates here.

How to become a niche agency

Becoming a niche agency

Why niche?

I spend a lot of time with my clients discussing how they can become a niche agency i.e. an agency that is more targeted towards certain types of clients and/or offers fewer services.

There has always been a lot of discussion about the benefits of niching.  With the amount of competition and disruption in the agency market, it doesn’t surprise me that niching remains a hot topic. If anything, the debate is intensifying.

My own experience is a testament to the power of niching (by client sector at least).  We built our agency into a £12M business by specialising in retail. It was a very powerful and successful strategy for us. It also gave me a unique perspective on the challenges and barriers to becoming a niche agency.

In this series of articles, I’m going to look at the advantages of becoming a niche agency. I will also be outlining what steps agency owners should take to niche successfully and grow their businesses.

Let’s start by looking at why niching is the exception rather than the rule. What drives and motivates so many agency owners to avoid niching?

The lure of full service

The attraction of being a full-service agency or, in other words, an agency that is set up to advise and create campaigns for clients across all media platforms, remains a powerful draw for many agency owners.

In theory, at least, the more services your agency can offer, the more client opportunities you can generate.  The larger the number of services you have, the more business you can gain through cross-selling and up-selling your clients.  But is this really true?

The term full-service agency has been around in advertising for many years. More recently, the explosion of digital channels and the complexity that this presents to marketers, has seen many digital agencies refer to themselves as full-service (even though they remain focussed on digital media).

You would be forgiven for thinking the opposite might have occurred. The proliferation of media channels, impact of technology and the way that the big agency groups – even with their huge resources – struggle to consistently deliver “full service”, could have killed the term. Specialisation would seem a more appropriate business strategy in today’s saturated agency market.

There are incremental costs involved in offering a wide portfolio of services. This places huge pressure on the business model and is difficult to sustain. I often liken this to a restaurant trying to maintain a huge and varied menu.

Despite this, for most independent agencies, the lure of being able to do everything still holds many agency owners in a trance-like state. 

An obsession with breadth 

As if offering a wide range of services was not enough of a challenge, many agencies are not content with coping with breadth alone. They insist on the added complexity of offering a wide range of services to a similarly wide range of clients. Both variety of services and diversity of clients is the goal for many agency owners.

Of course, there are advantages of having a diverse customer base. In theory, at least, it means you have more opportunities to win more clients. You’re not constrained to or limited by market sectors. Variety of work and the different challenges presented by diverse markets can provide the agency and its talent base with more stimulating and rewarding work. 

Whilst these can be seen as positives, I would argue they are really advantages for the agency rather than its clients. 

One true client advantage of using an agency with a wide client base is the ability for an agency to cross-fertilise. An agency may create better work for their clients by using ideas and strategies formulated in one industry and transferring them to a client in another – unrelated – sector. Of course, this can work, but when it comes to client diversity I think there are more advantages for the agency than for the clients they serve.  Moreover, they are usually perceived advantages rather than reality. 

A fight for survival

Getting any business off the ground is tough. About 20% of UK SME businesses don’t survive the first year. Half of startups don’t last for 5 years and fewer than 33% get to celebrate their 10-year anniversary.

Moreover, approximately 75% of UK SME businesses don’t employ anyone other than the owner. If any business makes it past these milestones it is a considerable achievement in itself.

Hard habits to break

When they are in the early stages, agencies are understandably in survival mode. Staying afloat is the focus. New business opportunities are hard to find and even harder to turn away.

At this point, it is understandable why almost all agencies work with clients from any sector (unless they have an ethical stance or a particular reason not to). The need to become a niche agency is simply not a priority.

Sadly this becomes a hard habit to break. Client business is hard to resign and once a diverse portfolio is established it becomes self-perpetuating.

A wide client base can feed further complexity for an agency. Young agencies with a small number of clients are naturally eager to grow their accounts. Growing and developing an agency can often mean taking on work that is not the core specialism of the firm. If an opportunity to do this occurs though it, like any new business, is hard to turn down.

If they are lucky, many agencies find themselves 5 or 10 years into their journey with a wide variety of clients. The problem is that the strategies that work for establishing an agency, doesn’t necessarily work for growing an established agency.

Breakout 

As much as they can be positives, having a breadth of clients and a breadth of services can be a burden for agencies. Not only is it a challenging business model to maintain, but it is also a challenging business proposition to bring to market.

As I noted earlier, growing any business is an achievement. In my experience, agencies can reach the 10 person mark relatively easily, but breaking through this is hard. Similarly, the £1M turnover milestone is a difficult threshold to break through.

Agencies of circa 10 people can become trapped in a kind of gravitational pull. They are usually working on a project by project basis with most of their clients. They are – hopefully – profitable but have little surplus to reinvest in the business. Usually, they are still working for a diverse client portfolio.

This dynamic, and the resulting inability for an agency to achieve what some call escape velocity. This is usually fueled by a reluctance to become a niche agency. Diverse clients and a variety of services dominate the makeup of these types of agencies as do references to full-service.

Courage and hard work

Even if the desire exists, trying to become a niche agency is hard work. Niching takes courage and conviction. It also takes a fair amount of soul searching and often a dose of creative thinking. Agencies excel at this sort of work for clients, but applying these things to your own business can be difficult, time-consuming and frustrating.

Many people are simply afraid to niche. A concern that having a niche market limits business opportunities is often raised. I find quite the opposite is true.  I can speak from personal experience.  

What sometimes helps is a realisation that your niche is not your market. If you become a niche agency, your niche gives you focus, it doesn’t and shouldn’t, dictate your market and your entire revenue streams.  

Niching is a strategic decision. Michael Porter says “The essence of strategy is choosing what not to do”. Becoming a niche agency is the courage to differentiate yourself in the market. To stand for something, and stand out from the competition. It will mean you can’t do everything for everybody but this is a good thing. It’s called positioning.

The power of the specialist

Rather than thinking of it as niching, I encourage my agency clients to think of the challenge as focusing

Allan Leighton, the ex- CEO of one of my past clients and current chairman of The Co-Operative Group, used to use a very powerful mantra “Winners Focus, Losers Spray”

Niching is not some sort of odd practice that only a handful of agencies should do. At its core, its the action of focussing your strategy, your business model and your people. It is about being an expert, a specialist. Its what service providers and professional knowledge companies need to be.

Technology, changing working practices, in-housing and the big media groups are all making the market for independent agencies even more challenging. There has never been a better time for independents to focus and specialise.

The future of independent agencies is about being small, agile and focused experts. People with big important problems want experts to solve them, not generalists.  They are also invariably happy to pay for the specialists’ skills, accumulated knowledge and expertise. 

Agency services are sold not bought

When it comes to selling services, the simpler it is to explain what you do the better. 

Clarity of message is important, but it has to be focused on what the agency does for its clients. So many agencies fall into the trap of describing literally what they do. They list and describe the services they provide rather than explaining how they deliver value to their clients.

Clients don’t buy agency services. There is too much supply and demand is rarely immediate. As an agency owner, you must sell your services. You must convince prospects why they should choose you, what is different about your agency and what you can do for them.

Doing this is far easier if you have positioned your agency.  If you have a clear target market, specialist expertise and, crucially, a compelling value proposition.

In Part 2, I’m going to explain what I mean by a value proposition. I’ll also be uncovering how I’ve helped agencies achieve more clarity and helped them stand out through better positioning.

Does your agency have service-market fit?

Gareth Healey asks does your marketing agency have service-market fit?

Why don’t marketing agencies focus on service-market fit?

In addition to being a marketing agency mentor,  I’m active in the tech startup sector as both an angel investor and a mentor to tech start-ups. Understandably, the tech sector gets a lot of media coverage these days. Amongst other things, there is a vast amount written about start-up tech businesses and their pursuit of what people call product-market fit.  Which got me thinking. Why don’t you hear anything about service-market fit and why don’t marketing agencies and other service businesses focus on it?

What is product-market fit?

The term product-market fit was coined by Marc Lowell Andreessen the co-founder of Netscape. He described it as “being in a good market with a product that can satisfy that market.”

Over the years the term has had different interpretations and emphasis. I notice that people often now use it to denote when a start-up starts to gain traction i.e. customer numbers and sales start to increase. I don’t think this is wrong, but I find more use for the term in more of a strategic context.

For me, product-market fit is when a business has identified a specific market, defined a problem/need in that market and developed a concept for a product that will solve or satisfy these issues.

The building blocks of product-market fit

In order for a product company to achieve product-market fit, a number of core elements need to be in place:

a) A sizeable and commercially attractive, but nevertheless, very SPECIFIC market(s) has been defined.

b) The business has a clear understanding of their target market, their behaviours, their motivations and their mindset as people (not just as customers)

c) There is a problem, an underdeveloped opportunity and/or underserved needs within the market. N.B. Customers might not necessarily be aware of this, but the business has validated it. When UBER started in San Francisco, few of their first customers had really been crying out for their concept, however the market and the underserved need was there.

d) The business has or can create, a product that will deliver value by solving the issues above.

e) The product is so effective at solving the problems that customers are willing to PAY to access it. This is simple, but overlook it at your – commercial – peril.

f) The product outperforms competitive offerings or alternatives (if indeed any exist).

Whilst product development is an iterative process, and product-market fit should lead to market traction, the sooner the criteria for the fit can be established the better. 

 Product-market fit should not just be seen as a signal of success, more a vital component and a building block of it.

Which comes first, the product or the market?

When people refer to product-market fit, all too often the focus is placed on the latter part of the term (a product that can satisfy the market) and not the former (in a good market). Importantly, Andreessen emphasised that the market matters most.

When a great product meets a bad market, the market wins.  When a bad product meets a great market, the market wins. When a great product meets a great market, both win.

Conventional wisdom leads us to believe that most products are created before they are sold. Inventions and historic discoveries have of course resulted in millions of commercial products. And some products have also been created by accident (the Post It note is one of the most famous examples). Nevertheless, today’s product development is primarily about innovation, not invention.  That said, even the wheel was created to solve a problem! 

Today you have to identify a market problem/need first. Only then should you “sell” the idea to your selected market to ensure it is truly required and commercially viable. If the feedback is positive you can then build the product out properly. This is the essence of the MVP (minimum viable product) approach.

Time spent building a business around a product is pointless. Building a business around solving a problem and/or satisfying a need in a market is the key. The product is the vehicle, the means to the end. 

Find a market, identify a need and then develop a product.

Customer First

There is a danger in making the product development process sound incredibly simple. It is obviously not. In modern society, access to information, products and services is fast and easy. Finding a product-market fit for a new product or idea is difficult. Finding a large enough market, that has a need that is EITHER underserved by others OR is a need that the market itself has not truly come to appreciate can be a real challenge. 

The ability to find a great product-market fit, whether the solution uses tech or not, can make the difference between your company being a success or failure.

Tech start-up founders are looking to solve problems for a specific group of people by building scalable tech products. However, it is customers, not start-up founders, that decide whether a product meets their needs or solves their problems or enhances their lives. That’s why smart tech founders spend so much time defining and refining their target market(s). They analyse not just their customers’ problems, but their behaviours, attitudes and how they approach the rest of their lives. 

Achieving absolute clarity on who the target customer is, allows product teams to build and tweak their products with a clear understanding of who will be using it, what they will be using it for, how they will be using it and, crucially, why they will be using it.

The target market is often segmented and profiled using audience personas or persona archetypes (we used to call them “pen portraits” back in my advertising days). Whatever you call these things, they achieve the same objective. They provide a profile of the customers not just by the traditional methods of demographics, but by looking at how they think and behave using psychographics.

Tech start-ups have a very high failure rate, but one pitfall is easily avoided. Many founders become obsessed with the product, not the customer. Constantly improving or tweaking the product, adding more features and enhancing the user experience is a sure-fire way to burn cash without achieving any traction in the market.

Customer-first thinking and an obsessive focus on the value proposition is a way that most start-ups can avoid the pitfalls of too much expensive product development and not enough actual sales. 

Beyond Noise Product-Market Fit Diagram

Sell futures not features

My friend and business associate, Mike Killen, has a modern take on the old marketing adage, sell the sizzle, not the sausage.  Sell futures not features. In other words, it is what the product can do for the customer that is important, the results it creates and the problem it solves, not the features it has.

The “value” a product delivers is what people will pay for. This value is captured in a value proposition which should form the basis of all marketing and sales activities. 

The value proposition sits on the front line at the interface with the target market. If the value proposition of a product can effectively capture who the product is for, what they need it for, how they will use and why it exists and is better than a comparable alternative the battle for sales and market share is half won.

What is service-market fit?

So what has this got to do with marketing agencies and where does service-market fit come in?

Whilst product-market fit is a frequently used term, you rarely hear it applied to service businesses. Indeed, if you do an exact match phrase Google search for “product-market fit”, you get nearly a million results. Doing the same search for “service-market fit”, delivers only just over 3,000.  All terms are not created equal it would seem, or are we all obsessed with products and not services? 

Most tech products are – at their core – actually service providers. The very nature of most SaaS products and companies is that it is technology delivers an experience or service. The fact that such businesses don’t rely on people to deliver the service though means that they are more repeatable and scalable business models.

Regardless of what industry you are in, or what business model you are operating, service-market fit follows the same principles as product-market fit but, of course, applies it to service-based offerings. 

There is a school of thought that service-market fit should be analysed BEFORE product-market fit for SaaS businesses. In other words, you should find a target market, identify a need and/or problem and then analyse whether people would buy a service to solve it. Do this BEFORE you then build a product to automate/deliver the service using tech and you will save yourself a great deal of time and money. 

What this means for agencies.

The majority of marketing agencies use people, not products, to deliver their services to their clients. All of them use technology to support the delivery of these services in some way of course, but their clients buy the time and skill of the people in the agency.

Nothing wrong or surprising in this. What does continually mystify me is why agencies seemingly give so little credence to forming or re-shaping their businesses using the service-market fit model.  

As I have explained above, the first stage to achieving product/service market fit is define the target market.  Agencies spend a vast amount of their time looking at target markets and segmenting their clients’ audiences, but almost no time at all segmenting or defining their own.

Most agencies are extremely reluctant to target a particular client sector.  For a long time, my own agency had a market focus. Not a particularly tight one I admit, but we were retail specialists. Looking back I often reflect on the knowledge and power this gave us. I don’t think I fully appreciated it at the time. The ability to target prospects at their own industry conferences, the opportunity to become subject matter experts, the ease with which we could converse with and onboard new clients were just some of the many advantages this had.

Crucially though, by having a target market we had a head start in identifying what problems our clients had. What was keeping them awake at night?  What opportunities did they want to exploit? What industry-specific needs did they display?

Having this knowledge not only enabled us to target a particular audience, it enabled us to construct, develop and review the services we provided around those clients and the needs they had.

So many agencies describe their businesses in terms of the services they have to offer. Many still cling to that coveted badge of honour that is full service.  “We do everything for everybody” they shout from the rooftops!

Describing your agency with a list of services is like a product company listing out the features of their product(s). It is features, not benefits. The sausage, not the sizzle.

Having a more focussed market (client segments) with a more focussed product offer (services) gives you power.  It gives you deeper expertise and more control of your business.  

You can start to measure your results better and you can start to set your prices for delivering the services. You don’t have to accept the “costs” dictated to you by the market norms of what is adjudged to be acceptable hourly rates etc. You can also develop your agency by adding the services (talent) that will really benefit your clients and enhance their experience,  rather than adding people to simply satisfy workload or capacity issues. 

In summary…

If, as an agency owner, you embrace service-market fit thinking when building your business, you will identify what types of clients will benefit most from working with you. What issues or underdeveloped needs do they have?

How can the services you offer (or maybe some that you currently don’t) BENEFIT those clients? How can you improve their user experience? 

How are you BETTER than other alternatives they may have (N.B. awards and having an office dog don’t really cut it)? 

How can you bring these elements together in a compelling value proposition that communicates how your agency fits with your target market

What do you need to do to change your agency with service-market fit thinking?

 

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