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The upsides and downsides of specializing as a business

The upsides and downsides of specializing as a business

As you grow your business, you’ll find opportunities to strengthen it by specializing. This is a story that we’ve watched play out with several of the businesses we work with. If you’re a jack of all trades, it’s hard to be a master of any.

We’ve seen businesses expand their range of services, only to realize that their best strategy was to focus on a niche. This is often just growing pains. For example, you could start out with one service and then expand your services, and find that your company is most profitable if you pivot to away from your original service. Or you may go back to your original plan, and chalk it up to learning. Growth is about adaptation and evolution.

The strongest businesses are exceptional at something. Being exceptional is hard, especially when you’re trying to be exceptional in too may areas. The problem is that areas where you’re weaker (less competitive) are taking up time, energy and resources. Sure, early on when you just need to build a customer base, you may have to take every opportunity you get. But as time goes on, and you find you have options, there’s no sense in pursuing sales and customers that are less profitable.

We’re a big fan of specialization, for the most part. It makes it easier to provide value to your customers. As marketing people, one major thing we love about it is that you strengthen your Unique Selling Proposition, which makes it easier to market your products and services.

Benefits of specialization

Benefits to the customer:

  1. Better quality
  2. Better value
  3. Customer confidence

Building your business around a specific area means all of your time and resources are being invested around being exceptional. Anything that distracts from this gets the ax.

Being exceptional goes a long way with customer perception. Are they hiring somebody who is able todo it, or somebody who is great at it? Being at the top of your field makes it easier to find and impress the best customers. Sure, you can’t always serve the ideal customer. But as you grow your business, you can build it specifically to better serve those customers.

Benefits to the supplier:

  1. It's easier to train employees
  2. It's more cost effective to run your business
  3. You can offer customers better value
  4. It will strengthen your marketing

One of the major expenses for any business is training. This expense can be reduced simply by having fewer things to train your people on. They’ll achieve a level of competence much sooner, and start making your business money.

Specializing can reduce most (if not all) of your operating expenses. For example, maybe you can deal with fewer suppliers, which means you can consolidate and/or streamline your procurement process. Maybe you can get rid of tools and materials you’re not using often. This will reduce the need for maintenance and storage costs on assets that are less profitable.

Specializing also strengthens your marketing. Stronger, in this case, means more cost-effective. You’ll get a greater return on your investment, because specialization helps you make your marketing more targeted. You won’t be spending money trying to sell to unqualified leads.

Is there such a thing as too much specialization?

For the most part, specializing is a strength. There are three major risks to it:

  1. Resource dependence
  2. Lack of creativity
  3. Opportunity cost

Resource dependence is a term that refers to becoming too reliant on any resource. The “resources” in question here include your employees, suppliers, and customers. If any single employee, supplier, or customer is too important, they have a disproportionate amount of influence over the direction of your business

A supplier with a monopoly over your business can charge what he wants. A customer who supplies90% of your sales can make unreasonable demands. An employee who is 100% indispensable to the company can cripple innovation.

If you develop tunnel vision, you can lose creativity within the business. You might have somebody(like an employee) who is too comfortable or risk-averse killing every new idea that comes along. For instance, the salesman who handles the customer account with 90% of your company’s business is not likely going to support dropping that customer. Even if you have an opportunity to expand your sales overall by 130%.

For more on Resource Dependence, you can read this post.

Just because you’re a specialist doesn’t mean you can’t be open to new approaches or even to pivoting. New opportunities arise in the business world every day. Markets evolve.

So the real risk of over-specializing is that you become too committed to a certain path and suffer an opportunity cost.

Four simple exercises to become more specialized

  1. Identify your most valuable customers/sales
  2. Find ways to provide these customers better value
  3. Identify your Unique Selling Proposition
  4. Identify ways to strengthen your USP

The whole point of strengthening your USP is to offer a value that nobody else can. This virtually eliminates your competition, at least in terms of your ideal customers. That’s why it’s important to think about which customers are most valuable to you. If you can build your business to serve the needs of those specific customers, the rest of the field will have a hard time competing.