A version of this article appeared in the Spring 2020 issue of strategy+business.
Whatever you’re going to do, do it well. Sounds obvious. But deciding precisely what to do — or whether to keep doing it — is often hard for leaders as they look to distinguish their companies, stay competitive, and adapt to changing market forces.
Numerous distractions — envy of a rival’s success, the blind pursuit of growth, underestimating the capabilities and investment needed to enter a new market space — cause companies to stray from their competitive sweet spots. Or sometimes organizational entropy sets in, causing even the best-constructed strategies to decay.
But what causes companies to stay true to their calling? What countervailing forces can leaders call on that will keep them where they need to be to stay competitive? Our work in service design and customer experience tells us that the answer can be found in the principles of design thinking.
We ask companies to define themselves in terms of one of nine customer experience archetypes — value propositions described in terms of the experience they create for customers. One of those archetypes is the specialist: the company that chooses to do one thing and do it uniquely well. For these niche players, the problem of focus is, literally, a question of identity itself.
And by understanding specialists, all leaders can learn tips that will help them keep to their strategies. To be sure, there are times when even specialists need to pivot to stay competitive. Sticking to your knitting isn’t smart if you’re knitting buggy whips in 2019. But far more common are mistakes specialists inflict on themselves by not deploying the strategies and techniques that can make specializing so rewarding.
Specialists come in two basic types. The first finds its niche in a particular product or service. Shouldice, the Canadian hospital that performs hernia surgeries and nothing else, is a famous example. Less well known may be Lesley Stowe Fine Foods, which makes just one product: Raincoast Crisps — addictive, savory/sweet crackers that come in several flavors. The second type of specialist focuses on a particular group of customers. USAA offers insurance to members of the U.S. armed forces and their families, winning business and loyalty because of its deep understanding of its clients’ lives and special insurance needs. GSW, a marketing agency in Columbus, Ohio, offers a variety of services, including advertising, branding, and promotion, solely to pharmaceutical and other healthcare companies.
Whether it specializes by product/service or customer or an intersection of the two, a niche company isn’t necessarily small. Lamborghini (€586 million, or US$650 million, in 2018 revenue) is definitely a specialist — but, arguably, so is BMW (€98 billion, or $110 billion). In the increasingly unspecialized post-Glass-Steagall financial-services industry, Lazard has stayed focused on investment banking, and booked $2.8 billion in operating revenue in 2018.
All specialist companies exist to solve a specific type of problem, or do a specific type of job, for customers that have a specific set of needs. To win by being narrow, specialists do six things:
1. They own, maintain, and demonstrate specialized knowledge. A specialist must have something in which to specialize. That knowledge can be technical or scientific, such as a medical specialty; or it can be deep knowledge of a market, such as a hotel concierge would have; or both. Marketing company GSW is a good example of a firm with specialized knowledge, and it stands out because many other agencies choose instead to leverage their flexibility to service clients in a broad range of industries. A marketer of medical products and services must comply with regulations about what can and cannot be said about products, have the ability to gain entrée to professional circles, and know which conferences, journals, and physicians are most important to a client’s success. That level of expertise would require generalist agencies to invest in resources GSW already has.
Specialist knowledge must be valuable and hard to copy, but needn’t be arcane. Merchants Metals, a division of Atlas Holdings, earns its specialist stripes by making and distributing fencing products for commercial, residential, and industrial use. Chain-link fencing, the company’s sole product, has been around for more than a century and involves little in the way of specialized technology. But selling it requires specialized sales and service. “We’re buying a commodity and turning it into another commodity,” says CEO Andrea Hogan. “If you can’t differentiate the product, you have to be the best at serving the customer.”
Specialist knowledge must be valuable and hard to copy, but needn’t be arcane.
Merchants Metals, consequently, focuses on production, delivery, and service. “Our job is to be the strongest, most reliable supply chain partner for our customers,” says Hogan. “I don’t want to add complexity.” In a more glamorous arena, Drybar, a chain of 100-plus hair salons, limits complexity and offers specialization by offering just blow-dry services, in just a few styles. Forget about cut and color (and don’t even think about getting your nails done!). With its narrow service offerings, Drybar has carved out a highly profitable niche by isolating and capitalizing on a single part of the overall hairstyling process.
2. They demonstrate their knowledge. When customers recognize specialists’ expertise, they feel that they’ve put themselves in not just good hands but the right hands. Thought leadership marketing — white papers, presentations at industry conferences, and the like — is therefore a powerful tool, serving as a complementary proof point to execution. Testimonials, references, awards, and certifications are other forms of tangible evidence of superior knowledge.
Sepire, a company that produces data-driven, secure communications for healthcare and financial-services companies, for example, has its staff speaking at industry conferences and touts its certification from the Women’s Business Enterprise National Council. “We want people to know not just what we can do for them but also what we stand for,” says Sepire CEO and founder Michelle Steinberg.
3. They select the right customers and set appropriate expectations. A dermatologist can give you a flu shot, but why would she, and why would you go to her for one? Specialists don’t squander time, talent, and attention on customers who don’t need their specialized capabilities. Sepire was founded in part because the principals were frustrated working for jack-of-all-trades companies whose broad product lines prevented them from delivering truly expert service in the technical, regulated niche Sepire wanted to occupy.
“In the age of the Internet and everybody trying to do everything for everybody, the role of a specialist largely disappeared in our industry. People are starting to value relationships and partnerships again,” says Sepire’s Steinberg. “But those partnerships are most valuable if we can work with clients who need our expertise.”
Steinberg points out that demanding clients with specialized needs keep her and her staff sharp, allowing for the exchange of knowledge that specialists crave, and, indeed, need. “We’ve walked away from large opportunities because in the RFP process it became apparent that the potential client thought they needed something but had zero intention of letting us dig in and roll up our sleeves and work with them.”
Or consider Elevate Destinations, a 14-year-old travel agency that occupies a niche within a niche within a niche: luxury, eco-friendly travel that has positive social impact — for example, by supporting sustainable development or volunteering with community organizations. Founder and owner Dominique Callimanopulos saw an opportunity to create a company that could put together donor trips for nonprofits that previously had no efficient way of allowing donors, boards, and investors to see, literally, where their money was going. “Development people are not travel specialists, so they were outsourcing the travel to us,” she recalls.
She then branched out into private travel for couples, families, and parents “who want to take their kids out of their bubbles” — enlarging the niche, but not changing it. She is careful to avoid the temptation of seeking customers who want luxury only, without the social conscience aspect. Callimanopulos describes Elevate’s trips as “safaris for the soul.”
4. They compete on value, not price. Specialists’ sales processes are almost invariably consultative — partly to display their skill to a prospective customer, but also to vet the customer’s suitability for them. Says Sepire’s Steinberg, “You can identify a specialist when on the very first sales call with a prospective client they don’t try to sell anything.” She says those first contacts should be about listening: “Find out what their pain points are, what they are really looking for.” If you try to make price your differentiator, you’ve surrendered your credentials as a specialist.
This means specialists need ways to deal with procurement departments, many of which are designed to encourage price competition and offer little opportunity for potential providers to showcase unique capabilities, especially in the early phases of the procurement process. (Another strong argument for amassing credentials.) Deep industry connections can help the specialist circumnavigate procurement to appeal directly to what Adele Ravella, author of Buyer Personas, calls the “strategic buyer” — the person on whose behalf procurement is working.
5. They seek and leverage the strategic value of partners and collaborators. Focused they may be; lone wolves they are not. All companies participate in business ecosystems — networks of suppliers, distributors, competitors, “frenemies,” and others. Winning specialist companies are particularly adept at creating and keeping mutually beneficial relationships in their ecosystem. Just as physicians refer patients to other doctors they know and trust, focused businesses cultivate relationships with generalists and companies that have complementary skills or occupy complementary markets.
Elevate Destinations has strong relationships with less-specialized travel firms, both getting referrals for its niche capabilities and sending business out that doesn’t suit its model. The company also relies on a strong network of on-the-ground suppliers: lodges, tour guides, and knowledgeable locals who can help Elevate deliver the experiences its clients expect.
6. They know the difference between expansion and distraction. The pursuit of complementary products and adjacent markets might be the biggest temptation for specialists — especially because their own customers might be urging them to blur their focus. Among the remains of ill-advised forays into what appeared to be greener pastures: Coca-Cola’s acquisition of Columbia Pictures; Google’s short-lived social network, Google+; Victoria’s Secret’s attempt to sell office wear.
Devotion to mission is a powerful way to differentiate a company, segment customers, and avoid tempting but dangerous adjacencies, whether you’re selling safaris for the soul or building the fences that keep specialists in line. Notes Merchants Metals’ Hogan, “If I start selling windows and decking, that’s going to take my team’s focus away from our mission, which is to get customers to win.”
These six traits reinforce one another. Specialized ability and knowledge, when demonstrated, attract and win customers who see their value and are willing to pay for it. They also admit a specialist into an ecosystem of both generalists and other focused firms that may be collaborators and competitors all at once. The healthier that ecosystem, the easier it is for the specialist to stay in its niche and thrive with its peers. Also, it becomes increasingly important to deepen the ability and knowledge that guard the specialist’s place. As Michael Porter points out, the pursuit of growth often blunts the edge of differentiation. More than any other kind of business, specialists need to keep that edge honed.
- Thomas A. Stewart is the executive director of the National Center for the Middle Market at Ohio State University. Formerly the chief marketing and knowledge officer of Booz & Company (now Strategy&) and editor-in-chief of Harvard Business Review, he is a contributing editor of strategy+business.
- Patricia O’Connell is president of Aerten Consulting, a New York City–based firm that devises content strategy for B2B and B2C businesses and develops thought leadership for senior management.
- Stewart and O’Connell are the coauthors of Woo, Wow, and Win: Service Design, Strategy, and the Art of Customer Delight.