This is the fourth in a series of five blog posts about how to grow your agency. Jeff Allen and I are hosting Agency Growth workshops in Portland and London. Learn all about how we’ve grown Hanapin from a $2000 investment to an Inc 5000 company and an Indiana Best Places to Work honoree. For more info, read the About page and our FAQ.
Make sure to check out the previous posts in the series.
- When To Hire Your First Employee
- Best Sources And Techniques For Identifying Great Talent
- When To Draw The Line With Prospects – Also Known As When To Choose Sanity Over Growth
Hat tip to Julie Bacchini for the idea for this blog post.
The short answer is yes, you should specialize. The longer answer is that the amount of your business that you specialize in depends.
First, and I’m obviously biased since Hanapin is 100% PPC, but as objectively as I can state, I believe you’ll offer the best service, have the deepest expertise, and have the most fulfilled employees if you specialize in PPC (or whatever specific skill you choose to specialize in) versus trying to do a little bit of everything even if 1, 2, or 3 (which would be your primary, secondary, and tertiary specialties) of those things comprise a majority of your clients and revenue.
I’m not just saying this from a theoretical perspective. A handful of years ago Hanapin offered SEO and web development services, in addition to PPC. I founded the company doing only PPC, and over the years folks wanted these tangential services, i.e. SEO and web development. It simply made sense, or so I thought, to offer them. If somebody’s trying to give you money, why not figure out a way to accept it? What I learned was that these three services, while related, are very different in terms of the skill sets needed by employees. It was almost like trying to run three separate companies. And you could see it in our revenue growth: the graph for SEO revenue was a bell curve, revenue for web development was a bell curve also, but revenue for PPC was up and to the right. Just a couple of years after re-specializing in PPC, we made the Inc. 5000 list and haven’t looked back.
So if you’re specializing in PPC, should you further specialize in a vertical, industry, niche, or specialist (hereby referred to as “VINS”). I think the answer is yes, you should specialize but you shouldn’t specialize the entire company around it for a handful of reasons. (Spoiler alert: the only exception to my advice is e-commerce, which I’ll talk more about beginning in the next to last paragraph.)
First, PPC is already a specialty, and further segmenting it leaves you with a very small percentage of the overall market that you can market to and service. Segmenting a segment, particularly one like PPC where many people feel they can manage their account themselves, stacks the odds of success against you.
Second, if you specialize in a VINS, the growth of your company is tied to the growth of that VINS. What I mean by this is your company can only grow as fast as the VINS you’re specializing in. So if it’s growing at 10% annually, your maximum growth will (with few exceptions) be 10% too. Also, you’re beholden to the economics of that particular VINS. In the case of the 2008 recession, if you specialized in the mortgage industry, the revenues of your company would take a big hit.
The third and last reason is that one of the benefits and reasons why clients want to hire agencies is because of their knowledge across different VINS and clients. The client wants you to learn from other clients and take those learnings and apply them to them. If you specialize in hospitality for instance (and I’m not knocking hospitality, I’m just using it as an example), the amount of learning you can take and apply from one client to the next is going to be very minimal. But if you’re working in multiple VINS you can take best practices from one VINS and figure out how or when to apply them – and maybe even to adjust them slightly – to another client in another VINS. Win-win for everyone!
(As I finished this blog post, I thought of another reason. If you specialize too much, for instance PPC lead generation in hospitality, folks will want you to know everything there is about lead generation for the hospitality industry, not just PPC lead generation in hospitality. They’ll want you to know how to work with call centers, phrases like “heads in beds,” how to track repeat customers and lifetime value, etc. etc. These are all things that you could do, but these are more in the sphere of business consulting. It will stretch both your capabilities and capacity to be able to offer services like this in addition to PPC. But remember, you’re only marketing to those who want PPC so that’s whom you’ll attract. Even though they don’t realize what they really need is a business consultant. Plus, they’re paying you PPC fees and not business consulting fees.)
So, if you shouldn’t specialize your entire company in a VINS, what percentage of the company should you specialize and how do you determine which VINS to focus on?
The place where I would start is figuring out 1) which VINS you have already but you’re doing it by chance and not intentionally? And 2) which VINS do you have true expertise in, that is you’re not “just” servicing those accounts?
The former is pretty easy to figure out. Do you have two or more clients in a particular VINS where you can sell similar results to others like them? The VINS should be similar enough that clients feel like you know enough about their VINS from another VINS but not so similar they feel they’re competitors. An example would be hospitality. French Lick Resort and Pinehurst are both resorts, both four stars, and both have world-class golf courses. The former is in Indiana and the latter is in North Carolina, and not competitors for that reason. They don’t have to be fantastic results, they just have to be good enough results that you feel comfortable taking on other clients in that VINS. Of course, the better the results, the stronger the specialization you now have.
The latter is a little more difficult to figure out because it’s not just about marketing to differentiate yourself, it’s about your expertise. That expertise can and should differentiate you. Can you actually service clients with expertise that other agencies don’t have? (Ads an anti-example, you can’t just do ad testing better than another agency.) So, if you are special specializing in hospitality, you need to have at least two clients in hospitality, you need to have generated good results for them, and you also need expertise that is different and better than other agencies in terms of servicing those clients. Otherwise your marketing will look superficial and prospective clients will see right through that.
While Hanapin does not have a stated specialty in that we have prospects we are actively trying to market to and sign, there are some specialties that we do better in than others. One of those is the for-profit education space. In a shrinking industry, it’s great to be able to deliver 40% year-over-year results, to show clients how Google handles their quality scores different than other industries (sorry, that secret is staying in the vault), on top of being able to actually tell for-profit education prospects that we have a long and extensive experience in the space. Part of the reason we don’t specialize in it, of course, is because it’s an industry that is shrinking overall. While we are happy to bring these clients on when they find us, we don’t actively target them nor mold our client list from them. Building your business from a shrinking industry will limit your own potential growth.
While there are tons of VINS you can choose from, you should narrow your focus to just three. If you have more than that, in terms of your marketing, your prospects will think you’re still trying to be everything to everyone. So you won’t get the type of pull or attraction you’re hoping to get by specializing.
All of this advice applies to every VINS I can think of except for e-commerce. The reason for this is that e-commerce doesn’t follow the same rules as other VINS. The e-commerce industry is always growing. Something like half of all human beings still are not yet connected to the Internet, so e-commerce will continue to grow until we hit the total number of human beings. Plus, even when we hit that figure, e-commerce will continue to grow, as people become more comfortable ordering rote items like dog food and toilet paper in lieu of buying them from a brick and mortar store.
E-commerce is also a large enough industry in that you’re not likely to be affected by some of the economic realities, like recessions, of other VINS. It’s a big enough industry that any given niche within e-commerce likely won’t comprise much of your business and negatively affect you. And if you are affected, you’ll be affected by the recession regardless of whether you are or aren’t specializing in e-commerce because the tidal wave is so big it’s hitting everyone in every VINS. There’s also a ton of expertise you can bring to the table that makes the decision to hire your agency over another or whether to do it in-house, easier. Things like Google Shopping or measuring the in-store lift are difficult things to figure out, so as a consultant they will always have a need for you.
Some of you may be thinking, what about lead generation? The reasoning is that if you don’t have an expertise in e-commerce, you likely have an expertise in lead generation as that comprises a large portion of PPC. Simply stated, I don’t think that lead generation is big enough to specialize in. The reason for this is because lead generation is not growing at the same rate as e-commerce is. While more and more people are connecting to the Internet, not all of them are quite yet ready to sign up for graphic design school (if you’re in or-profit education, for instance) in the same way that folks want to buy stuff online. They’re already buying offline, and getting access to e-commerce simply facilitates their current behavior. There’s also an issue of scalability. While lead generation clients will generally say, “give me as many leads as you can,” the number of qualified sales reps they can find limits the growth. So, while I don’t think you can specialize an entire agency around it, I do think it could be one of three specialty areas.
