Bruce MacEwen at Adam Smith, Esq. makes some great points about the need for challenging and validating new market entry plans in order to increase your chances of success. But it got me thinking about the ways in which professional services firms (PSFs) go about entering new markets (and about how many firms have robust plans that can actually be properly challenged).  My thinking was further stimulated by a discussion yesterday with a client at a boutique tax firm that is grappling with the right approach to building out a new practice area.

Just to be clear I am considering new markets to be either geographic, service/practice area, or client type/industry.

In my experience PSF market entry approaches seems to fall into three, not necessarily mutually exclusive, categories which I’ll call accidental, incremental and strategic.

• Accidental is when the firm wakes up one day and realizes “hey we seem to have ended up with a bunch of clients in the cleantech space” or “we have a lot of clients asking us for assistance with setting up employee Health Savings Accounts” - perhaps we should focus on this market.
• Incremental is when the firm, has an instinct or some data that suggests a particular market might be attractive and decides to dip its toe in the water, perhaps by allowing a partner to devote a percentage of their time to targeting the market.
• Strategic is when the firm makes a clear decision, backed up by significant investment of resources (and hopefully a business plan) to enter a market.

I’m curious as to which of these categories is the most common in professional services.  My experience suggests that accidental and incremental approaches predominate and that strategic approaches are rarer (perhaps because they selectively follow accidental or incremental starts to market entry).  I also suspect that strategic approaches are most common with geographic market entry since it’s difficult to accidentally or incrementally target a new country or city hundreds of miles away.  Conversely its often relatively easily to dip your toe into a new service line or industry, particularly if they are adjacent to existing practice areas.

I’m also pondering whether any of these approaches is inherently better.  We might assume that strategic approaches are the way to go and that any relative lack of strategic approaches in professional services reflects the low risk and low investment appetite of the firms.  But there are plenty of examples in other industries of accidental and incremental market creation (think text messaging in the mobile industry for example) and innovation experience (see Google) shows that rapid testing and development of new ideas can often be better than grand strategic designs.

What do you think?  Is one approach more common than the other?  Is one approach better than the other?

The answer to that question is probably quite a lot, but I want to focus on the recommendation engines that are such an important part of Amazon and Netflix’ success.  Michael Schrage has an excellent article in the May/June 08 edition of Technology Review that discusses the strengths and weaknesses of existing recommendation engines.  The technology is interesting here, but I’m more interested in the underlying principle of recommendation engines i.e., that someone who bought x might also be interested in y.

Applying this thinking to professional services isn’t difficult - a client that needs an audit, might also need tax compliance, a client that needs acquisition due diligence might later need post merger integration support. But just because some of these related services are obvious doesn’t guarantee that they are offered to clients.  And not all recommendations may be intuitively obvious.  Just as customers who bought Neil Diamond’s latest CD also bought Mariah Carey’s latest CD (it’s true - I just looked it up on Amazon) so might clients that used your IP attorneys also use your employment attorneys.

One of the challenges in professional services firms is cross-selling, getting folks in one practice to promote to the services of another practice area.  Amazon and Netflix have the advantage that their recommendation engine is a piece of software - free of the individual motivations and organizational barriers that can hamper referrals inside a firm.  Firms that have embraced key account management or cross-functional client service teams are likely doing a better job of this than most - but how many firms are leaving revenue on the table through the absence of an effective recommendation engine.

I have no doubt that there would be a powerful ROI in giving someone the responsibility for mining data on the range of services that specific clients buy and actively working with client relationship leads to make clients aware of how the firm has served clients with similar profiles and needs.

Based on our research, 8,311 is the number of individual marketing communications outputs* that 100 of the leading professional services firms have produced so far in 2008. That’s roughly 88 new white papers, press releases, web seminars, newsletter articles etc. every single business day - or close to one item per firm per day. Every one of those items is intended to provide current or prospective clients with insights and opinions on a range of business and technical issues.

It’s great that professional services firms are producing and sharing so much of their insights and expertise as part of their relationship development activity. But it also presents a significant challenge.

An executive at the kind of business these firms are serving or targeting might easily have a relationship with 5-10 of these firms (a couple of CPA firms, a couple of law firms and some consulting firms). Hence that executive might be on the receiving end of multiple communications per day (although the number will be lower if firms with diverse practice or industry sets do a good job of targeting their communications).

With executives hard pressed to deal with their day to day workload and suffering from information overload it’s critical that firms develop and deliver collateral and/or events that are:

1. Highly focused and relevant to a clients issues and concerns
2. Providing valuable and preferably action oriented insights
3. Differentiated from the communications of other firms
4. Delivered in the way the client most prefers to receive it
5. Accessible at a later point in time when a client’s changing needs match the firms insight

You can use these criteria to develop your own “production checklist” which will need to include answers to the implicit questions such as “what are our clients key issues” or “what have our competitors said on this issue”.

Rigorous use of the checklist should result in increased ROI on marketing communications activity.

* Our research tracks all firm marketing activity that provides news, insights and expertise to current and prospective clients. This includes articles, newsletters, briefing papers, surveys, research studies, white papers, webcasts, conference speaking, media quotes and coverage, press releases, podcasts, blog entries and more.

Welcome to “The Big Sky View”. This is my new blog (me being Paul Gladen).

I plan to share my thoughts and opinions on the trends and issues shaping the professional services industry (primarily law, consulting, accounting and technology services).

“The Big Sky View” name comes from the fact that I now live in Montana - Big Sky Country - and that I hope to blend some big picture perspectives and blue sky thinking, with some clear views on the future of professional services.

Here’s The Big Sky View from my office at 5pm Friday…….

I hope you enjoy reading The Big Sky View and look forward to hearing from you.

P.S. - My old blog was the Chief Innovation Officer and you can still read the archive posts from that blog by selecting the “Chief Innovation Office Archive” category in the left hand column of this blog.

For professional services firms, attracting and retaining talent is a critical issue - and if recent conversations are anything to go by, it’s the number one issue in CPA firms right now.

In April, I co-authored, with Dr. Teresa Beed of the University of Montana, an article in the Journal of Accountancy on the importance of a Firms website and broader online activities to its recruiting and retention efforts.

You can read the article here.