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.
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.