What are you best at?
If you happen to be Google, you’re pretty good at search. And infrastructure. It remains to be seen if you’re any good at social media. It’s fair to say you weren’t much good at Answers, Catalog search, Page Creators, Audio Ads, Wave-ing and Buzz-ing.
The Google example demonstrates that no one can be good at everything, even if they do hire a lot of smart people and have billions in the bank. People, like companies, are good at doing some things, and are okay, or poor, at everything else. Not because they can’t do other things, but because they don’t have the time, inclination or disposition.
This truth has led to specialization. Individuals specialize. Companies specialize. Countries specialize. In economics, this is the principle of comparative advantage and it is the basis of trade. We do the things we’re good at, and buy in the things we’re not so good at, or don’t want to do.
We Can’t Be Good At Everything
Like Google, we can’t be good at everything.
Many small businesses make the mistake of trying to do everything, mainly due to lack of resources. However, the opportunity cost of trying to do everything can mean they end up being not very good at doing any one thing. This approach can make them uncompetitive.
Just because we can do something doesn’t mean we should.
Like many web professionals, I can do some coding. Some web design. A bit of this. A bit of that. But I know there are people who are way better at those things that I am, so I let them do it. If I focus on what I’m good at, then I can make money doing that, and buy in the skills I need.
There are many benefits to specialization. For starters, it’s much easier to build a reputation or brand. Who is the go-to guy for Search Engine News? Many people would answer Danny Sullivan. Who is the go-to guy for search patents? That would be Bill.
Another advantage is that specialization leads to omptimized and more efficient processes, and therefore lower costs. The specialist can optimize and improve their approach to a niche activity in a way a generalist seldom can because their focus means they are more likely to see the details.
Most of us occupy very crowded marketplaces, which makes it difficult to stand out as a generalist. Brands, and reputations, can get confused and diluted if businesses spread themselves over multiple service areas. Virgin gets away with it – mainly because of the brand that is Richard Branson – but they are an exception, not the rule.
Not that this article is about the merits of specialization vs being a generalist. More a case of optimizing a business to focus on those areas that are most lucrative, and literally weeding out everything else.
Weeding Out Clients
A lot of companies, like a lot of people, live paycheck to paycheck. They don’t want to turn down any business, because the more clients, the better, right? The more opportunities, the better?
Not all clients are equal. Not all opportunities are a good fit. A client who costs a lot to service, who doesn’t pay their bills on time, who makes life difficult for you is probably not a client worth having. Sure, they might help keep us going to the next paycheck, but this is not an optimal way to run a sustainable business long term. Such clients present an opportunity cost i.e. we could be working with better clients, be making better money, and honing our service around mutual benefit.
For this reason, many companies make a habit of firing clients, or never take them on in the first place.
For example, last year, I received a letter from my accountant. She advised me they were reviewing their business and letting a lot of their clients go, although they were still happy to work with me, and asked that I have a chat with them if I had any concerns.
I did have a chat with them, mainly to confirm my suspicions.
They were deliberately getting rid of 50% of their clients. They had figured out who their top clients were i.e. the clients who took them the least time to service because their books were in order, and they eliminated the rest i.e. those clients whos books were a mess and were generally a pain to deal with. They downsized their business, reduced overhead and now tell me they are making more money than they previously were due to their optimized cost structure. They also appear to be playing a lot more golf!
They optimized their business, became more profitable, and have a lot more time because they made a point of figuring out the core of their business, and saying “no” to everything else.
Saying no can be very powerful. Prospective clients seem to respect this more, not less. There is something very appealing about a service that is exclusive and beyond reach. It signals a level of confidence that can be attractive.
Exclusive positioning is not just done for the sake of it. It’s a way to filter clients in order to find a good fit, which is especially important for small companies, as they have less resources available to carry bad risks. If we can figure out a client need that we know we can service well (specialization), with sufficient margins for us to be enthusiastic, and the client gets the value they were looking for, then everyone wins.
Let’s say running a PPC bid management service earns an internet marketing company the most money with the least effort. Let’s say they also do web design, but this is a lot more work (read: higher cost to service), and the margins are lower.
Would this company be better off saying “no” to new web design business? Quite possibly. They could dedicate more time to PPC, their PPC processes would get more refined through increased specialization, and they would likely be better placed to compete in the PPC space as their brand and attention becomes more focused. They could let go of the web designer, thus reducing overhead.
Granted, there are many factors to consider, but the question is this: are some areas of your business being serviced only because you can? Or does it make sense to focus on the areas where there is best fit? i.e. better margins, lower costs, most productive relationships – even if that means letting some clients, and even some staff, go?
Could we get better at saying “no”?