Building a niche firm takes focus. I picked my niche (Dentist Advisors) in 2010. Now, more than a decade later, I’m enjoying the fruits of serving a narrow customer base. But lots of large firms are successful without niches. Does it really make sense to go after a niche?
I’d like to explore two main reasons to niche down. The first is one the industry discusses all the time—the second reason is less appreciated but will be even more critical in the years to come.
First reason: niche firms have more efficient marketing.
Yes, niche firms can generate more prospects, and they can do it faster with paid media, organic content, and word of mouth. Niche firms are more efficient with their marketing spend. In an overly generalized advisor marketplace, prospects notice the difference. And as Michael Kitces writes, niche firms grow faster and are more profitable.
This is very important for startups and smaller firms who are trying to scale up. In previous decades, it was easier to get a practice off the ground with a general clientele. You couldn’t even invest money without going through someone. But times have changed as technology has automated a lot of the investment management jobs humans used to do.
Now, clients and prospects are looking for advisors with unique intellectual capital—people that speak their language and much more directly to their unique problems and needs. The financial advisors that thrive in the future will innovate in an area where they have a competitive advantage over computers: communication. Especially as it relates to decision making—both emotional jobs (help me feel better) and highly specialized functional jobs (do this thing).
I suggest advisors find a unique focus so they can become highly specialized communicators to a very specific audience.
Second reason: niche firms deliver a more valuable service.
It’s not just about “niche marketing” (that’s how most people view choosing a “niche”). I prefer to think about the benefits of “niche firms” as both marketing and services, where the real benefits of niche firms lie in the delivery of the services (jobs to be done).
Why? When you target a precise customer, your services create more value for the end client both through specific functional expertise (I’ve done this really specific job thousands of times) and, emotional confidence (I know your situation very well and my advice is tuned to your unique circumstances). The complete value package (functional and emotional) is just so much more resonant when you focus on a niche.
As technology replaces the generic and commoditized jobs in the industry, firms that create more value per dollar of staff cost will thrive. And the way to achieve excess value creation is through emotional jobs, not functional ones. Firms who specialize in a niche can service emotional jobs far better than those who don’t.
For example, take a look at Cooley, a law firm with deep expertise in venture capital and fundraising. They can demand thousands of dollars per hour from even relatively inexperienced associates. Dozens of firms can do the functional job of drafting documents for your Series A—but Cooley can do the emotional job that customers are looking for: “feel confident that I’m not going to screw this up.” Because they are niche focused.
The simple fact that Dentist Advisors understands the emotional and psychological issues at stake for dentists gives them a significant advantage over other firms. They are able to demand premium subscription fees and AUM fees. Even if other firms do the same functional jobs for a dentist, clients aren’t really hiring Dentist Advisors for the functional jobs most of the time. It’s the emotional job of “feel confident I’m not missing anything about my unique financial situation as a dentist”. That’s what the client is hiring us for.
It’s always about jobs to be done.
The right niche helps expose the most precise functional and emotional jobs to be done. If you haven’t read my previous posts about these two topics, you may want to check them out.
For example, think about how these functional and emotional jobs are much easier to expose because of the decision to pursue a niche market:
JTBD: “Decide on whether you should join a group practice or remain independent.”
Imagine how an anesthesiologist advisor like Justin Harvey could answer this question with authority. And imagine how an advisor like Matt Mulcock could answer this for orthodontists particularly well.
What about these jobs?
• “Choose ratio of stock options and salary deferral at my new startup”
• “Select repayment strategy on my student loans”
• “Feel confident that my plan isn’t missing anything”
Imagine how each niche advisor would answer the emotional job (“feel confident”) with increasing authority. And imagine how each niche advisor would expose entirely different functional jobs that other firms are not even aware of.
Most advisors in times past wouldn’t even consider these jobs to be part of the scope of “advice.” These might be considered “value add,” but probably not core to their service offering. I can see a near future where firms who are pursuing niche markets not only serve all of the generic, functional jobs well, but they actually serve more functional jobs and fulfill them optimally. And thereby deeply serve the emotional jobs that are the most important to clients.
How much better could you serve your clients by pursuing an increasingly narrower niche? Imagine you start with Professionals, then you niche down to Medical Professionals. From there, you choose to focus on Dentists, then Orthodontists. Imagine how much better your firm could evolve if you were just serving the Orthodontist, as opposed to the “ Professional.”
The more you narrow your niche, the more the jobs start to show up. And this whole process of narrowing your niche is simply adding more and more value to the client over time.
So what niches are the best? And what kind of niche will expose the most narrow or precise financial jobs to be done?
A very narrow and precise niche.
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