5 Proven Growth Strategies (and Their Risks) for Your Firmby
Most accounting firms regularly give some thought as to how they might grow whether it's through advertising, adding more clients, offering a new service or even trying to penetrate a new industry. But how many firms can honestly say they took the time to create a formal strategy?
Creating a plan that delineates the services you will offer, the clients you will target, the industries you will serve and how you will position your brand within those industries is extremely worthwhile. It can give all of your efforts a solid direction. At the same time, it’s an exercise that is often fraught with problems. Sexy strategies can win out over the practical.
New strategies can win out over those that are tested and true. Often, an all-of-the-above strategy emerges because no one at the firm wants to be the one to say, "no, we should not do that right now."
Here’s another thought that rarely comes up: risk. How much risk is involved in your growth strategy?
Put another way, what can go wrong if you pursue a particular strategy and what do you stand to lose? It’s not a question that often gets asked in talks about growing the company, which are often buzzing with optimism. But it should be.
To help frame the growth discussion at your firm, here are five proven strategies for how to grow your business:
1. Increase Penetration of an Existing Market
In the product world, there’s a saying: the easiest sale is the customer you already have. It is usually uttered in discussions that surround retention, but it might also be said about increasing market penetration.
Simply put, increasing market penetration is selling more services to the customers you already have. It can be a great strategy, because it increases revenue without the effort and expense of obtaining new customers.
But it is not without risk. Selling an ever-increasing amount into the same customer pool can be tough on clients and your firm. Indeed, research my firm conducted shows that few customers understand the entire range of services available to them, and the education process is not always easy. Clients may associate your firm with one service, but not another. It’s an extremely common problem.
2. Offering Your Services to New Markets
This is an exceedingly common strategy. If you firm is doing well in Market A, it stands to reason that it would do well in Market B as well, right? Not always.
While there are many circumstances in which this makes sense, the risks can be substantial. For starters, it costs money and time to educate and nurture a new audience. Do you have enough of both to see meaningful gains?
Underinvestment is a very common mistake. There’s also the risk of diluting your brand. If your firm is associated with a certain industry, you don’t want to pull the focus away from that unless you know there is new business to be gained.
3. Create Alternative Distribution Channels
This is a common strategy in the product world, which is far less common in professional services. But it does exist.
For example, if you firm partners with a trade association or business organization to sell services, this is an alternative distribution channel. It is something outside your primary marketing efforts. The risks here are lower, and primarily involve whether the time and expense of the effort justify themselves in the acquisition of new business.
In our example of a partnership, these relationships can often be very time consuming. If they don’t produce revenue, they become a drain on resources.
4. Developing New Services
This is one many firms pursue because new opportunities often present themselves. For example, new rules for revenue recognition might lead to an idea for revenue recognition services. The question is whether that idea should be acted upon.
In truth, the risks involved in new services are substantial. For starters, there is opportunity cost. What could you be doing if you were not spending your time developing new services? More marketing? System optimization? More billable hours? All could present a faster path to more revenue.
There’s also the challenge of creating services that are complementary to what you offer now. Just because your firm sees them as so does not mean your clients will feel the same.
Then there’s brand dilution, something not often talked about. By expanding the services you are known for, you may lose the association with core services that caused your clients to hire you in the first place.
5. Selling New Services to New Markets
This is the riskiest strategy of all because everything is new to your firm: both the market and the product. In the most extreme cases, you are in essence establishing a new business. Of course, it can be lucrative under the right conditions. But be very careful before you go down this road.
As you can see, every strategy carries risk. But how much risk can vary greatly depending on your firm’s situation, and how the strategies are executed.
How do you mitigate risk in all of these strategies? In a word: research.
By studying your moves beforehand, testing your hypothesis and creating a proof for every concept, you can dramatically reduce the chances that you will go down the wrong road. And if you do find yourself on the wrong path, a correction won’t cost much in money or time.
Lee W. Frederiksen, PhD, is managing partner at Hinge, a marketing firm that specializes in branding and marketing for professional services. Hinge conducts groundbreaking research into high-growth firms and offers a complete suite of services for firms that want to...