There’s an idea in poker called “table selection.” There are two ways to win more: you can either improve your skills or play against weaker players. The metaphor applies to every industry.
You can grind out a living in any niche. But the right niche can be the difference between making $10,000, $100,000, or $1,000,000 a year, with you working the same amount of hours.
Here's a quote from a McKinsey report:
The role of industry in a company’s position is so substantial that you’d rather be an average company in a great industry than a great company in an average industry.
With this in mind, I believe there are two relevant questions that every consulting firm should make:
- Are you sitting at the right table?
- If not, how can you move to a better one?
They all take me back to The Star Principle, by Richard Koch, where we can draw amazing insights on positioning.
Are You Sitting At The Right Table?
A Star Business is one with an overwhelmingly high chance of success, and the concept is a proven one. Koch's 50% success rate is unheard of in a world where venture capitalists are happy to hit 5-10%.
According to him, a business needs to meet two criteria to be a Star Business:
- It operates in a high-growth market (at least 10% growth per year);
- It is the leader in that market.
Many consultants tend to "feel the temperature" of the market based on private conversations with prospects and clients. While these are valuable to improve your offerings and the way you promote them, it's not that difficult to check for more reliable data on your niche's growth.
Some key questions are:
- How much has your business grown in the last 12 months? How fast is your niche growing per year? Is there any strong reason to expect growth to slow in the next 2-5 years?
- Is demand in your market finite (demand is limited, no matter how good your offerings get) or expandable (the better and cheaper offerings get, the more companies will hire it)?
- Is demand in your niche so strong that even mediocre consultancies are thriving? Or is it stable / growing moderately?
Remember McKinsey's quote: You’d rather be an average company in a great industry than a great company in an average industry.
How Can You Move To A Better Table?
According to Koch, it's all about selecting the right idea and positioning. The steps to do it are simple, but not easy:
- Take a high-level look at your market. Segment off a niche of the main market where you will be the leader, and become a "category of one". It should be a high-growth niche.
- Do customer research. Their needs must be clearly different from those of the main market, so your offerings and the way you do business should also be.
- Make sure the new niche is more profitable than the main market, and that you have a feasible go-to-market strategy you can implement.
- Name the niche you plan to lead, and build your brand and positioning strategy on the back of this name.
If you're starting your consulting practice or are making changes to your positioning, doing this exercise is an absolute must.
Some consulting firms are, however, very reluctant to change their positioning. They have specific expertise, brand equity, and internal capabilities that, understandably, increase their downsides and risk of making this shifting.
If you can't (or it is not sensible) to move to a different table, you can follow the path of other consulting firms that found other ways to leave a poor niche. There are two main strategies I've seen executed with success:
- Create a new brand in a growing niche, and slowly transition; or
- Increase specialization in your current niche.
In the first case, you are putting your entrepreneurial hat and thinking in bets. Your current consulting practice will continue to serve existing clients, but you will slowly shift your focus (and marketing resources) to a new brand, in a different niche, serving different clients. Companies should be completely separated though - your team, systems, and overall operations can't communicate.
The transition can be tough when you are bootstrapped and have too many balls to juggle. If your current business is systemized and in good shape, you can also sell it to dedicate full-time to your new brand. This is the path many boutique consulting partners end up taking.
The second case requires further specialization - if you can't change table you might as well focus on only playing hands with weaker players. This is usually riskier and consists of evaluating which vertical or sub-niche you can dive deeper into.
This can be done only when you find a couple of sub-niches that, for some specific reason, are thriving despite the overall industry's slow growth. If that's an avenue you want to pursue you will need to move back from macro to micro, and get ready for many one-on-one conversations. You will need to know your small pond better than anyone else.