Which way to Expand?

We worked with an ‘Engineering Firm’ a couple of years back based in a regional city in Western Australia. They were “kings of the hill” in the region, and they received quite a bit of government work for highways, bridges et cetera in the local area, but they knew their bridge specialist staff were missing out on quite a bit of work beyond their shire and the principal partners were looking to expand the operation.

They faced two options. The first of these is to expand the type of work they offer, so they can provide additional services to the same clients, who were very happy with the service. The other option was to offer their existing services wider, to similar clients in other regions. They got creative. – They decided to do both.

They first opened a second office in another regional city some 120 km from the area where they were unchallenged as industry leader in engineering. They measured the rate of acceptance and found that some of the decision-makers within the government clients that were buying from them in their home town were also key decision makers in this next region.

They were able to hit the ground running, operating on their existing reputation, and secured an abundance of structural engineering work from the new office. Within the first 12 months of their engagement with us, they had opened three new offices and had employed an additional 10 people.

Next they expanded the services they offered, including a stand-alone drafting service, which was able to set them aside from other engineering firms as well as to compete against existing drafting firms, with an engineering back-office. The results were phenomenal.

Normally, with such a rate of growth there are a lot of growing pains for most organisations. However, these engineers understood this before they started and implemented a plan to segment the marketing aspect of their business, from the core business. They understood that most engineers felt a bit “icky” about having to become salesmen, in order to win the next job. Most did not feel that that was their role, but recognised in these regional offices there was no one else to do that job. By centralising the marketing function, they ensured that their key engineers only attended sites that were qualified for estimates or tenders, and that they would be almost assured of getting the work, if their engineering and pricing was appropriate.

This is a sensible method of building a long term, sustainable expansion model – without any major significant business makeover. Any major change made to a company is of course a collection of changes made to the people who work in a company. Change makes people nervous, especially those who have a mortgage. Principles of this company were sensible enough to recognise that they could stabilise the growth by removing the business development role from the people who didn’t want to do it in the first place, namely the engineers themselves.

In the early days, most of the business development was done by the principals, as they managed to outsource their own engineering roles to only concentrate on business development and the high-end work that they enjoyed the most. Over time, they were able to appoint a business development manager, with an engineering background, whose role is to secure projects for reach of the offices on a long-term basis. They now have someone else to shore up the pipeline, and have given him a mandate and a clear direction to get the job done.

Becoming the Go-To guy

For some skilled and professional service businesses, it is more convenient for them to offer a range of services to their core client base, rather than specialise in any particular type of work. This has advantages in terms of reducing the business revenue roller coaster ride. It also provides the potential to derive far greater fees from each client by providing a ‘one stop shop’ type of service where all of their requirements are catered for (example: an accounting firm which provides financial planning, wills and specialist business advice).

It costs seven times more to acquire a new client than it does to sell new services to an existing client. When you realise that the client will acquire these ‘additional services’ from another organisation anyway, it is an easy decision to provide the related services yourself (even via an ‘alliance partner’ if the work is beyond the skills of your business).

This is not to say that it is not a good strategy to specialise in a given area. Position as a ‘specialist’ creates a strong ‘niche’ but does not preclude you from other areas. If you have a structural engineering practice and you specialise in road bridges, then your role should be to become the go-to-guy for road bridge design, in your region. As you reach a higher penetration of decision makers and buyers for road traffic bridges in your region, you can look beyond your region to the next region, as your expansion role. You get economies of scale, you get a wider market and most importantly, you get a lower concentration of work with a wide range of clients. This reduces the vulnerability in a practice very quickly. It also gives you economies of scale for what you do well.

In order to become the prominent party in any particular type of work, there is an expectation that you will give some free advice to people; in particular the decision makers in prospective clients and competitors clients. This can be very powerful in your positioning when you help them avoid the pitfalls and problems they may be facing.

You may be aware that if a government client issues a tender based on the design they think they need, they may end up spending double that on variations. If you were to sit with those people for one to two hours of your time – free, you would be able to educate them on how to save themselves money through eliminating variations on a properly structured tender. Once that tender is released, you will automatically become the prime tenderer, as the most knowledgeable respondent.

This represents less risk to the tender assessors. Given that some engineering clients are government clients, it’s important to understand that decision-makers within the government environment make their decisions by the degree of risk, rather than the cost. This risk is about their careers more than it is about the project. When you are aware of this, you can actually explain this carefully to both the tenderers and the designers, so they understand the benefits of getting it right before they tender. This automatically makes you the go to guy.

Specialisation can be situational

Approximately 10 years ago, we dealt with a group of engineers and a ship’s captain, who was servicing the north-west shelf gas project in Western Australia. They looked into ways of generating revenue by offering a service that no one else could offer. They got creative by offering a service that everyone needed, that was freely available in Perth harbours, but with up to 10 day sailing.

At $1 million a day, tugs and barges would lose many millions of dollars a year, obtaining their certification in quarantine and fisheries checks, which needed to be carried out in these ports. The problem they identified was that if the ship was found to have any contraband on board, it had to dispatch to Perth or Singapore, the two closest ports, and undertake a full quarantine fisheries inspection, after being treated. The cost of the inspection was negligible, in comparison to the sailing time and loss of income associated with getting the vessel to an inspection site.

This group of guys established a quarantine inspection and treatment station just outside of Singapore, where all shipping that headed to the north-west shelf would pass, on its way from Singapore. They only offered this one service of treatment and inspection, to almost all shipping types, with an Australian AQIS and Fisheries certification.

Even before they had commenced operations, they had years of work booked in advance. They did not look to other parts of Australia or around the World to offer this service and they did not offer any other service to these tugs and barges, as they went through.

Their specialisation gives them economies of scale and they are able to make a healthy return by adding semiskilled and unskilled workers at their facility.

Conclusion

The key to creating a niche in a skilled service industry is to find a collective set of skills within your practice that could be promoted as making you superior to the generalist practices. You then need to highlight the differences and start to promote this specialisation with some free, casual advice (the best contribution to a marketing budget you will ever make) and become the Go-To-Guys for one particular application.

A surgeon is a surgeon and a heart surgeon can easily remove melanomas in a clinic (for the same cost as a GP) but would not promote himself to other GPs or hospitals for these services. He wants to be known as the best solution for anyone with a need for heart surgery. Most accountants refuse to specialise and as a result are not able to differentiate themselves. If you can’t differentiate yourself – you can’t stand out.