Transcript of Increase Profits Through Specialization written by John Jantsch read more at Duct Tape Marketing
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John Jantsch: One of the ways to really drive up profit is to specialize, is to go into a vertical market, is to go have a niche, to get known as an expert in X, Y, or Z. In this episode of the Duct Tape Marketing podcast, we speak with Philip Morgan of Philip Morgan Consulting, and that’s what he does. He helps people specialize and position their business in a way that allows them to get more profit, to drive the cost to acquire customers down, to become really known as the expert in their field of specialization. Check it out.
Hello and welcome to another episode of the Duct Tape Marketing podcast. This is John Jantsch. My guest today is Philip Morgan. He is a consultant at Philip Morgan Consulting, but he works with specialization and helping people find niches and helping them position their firms based on those niches and that specialization. That’s what we’re going to talk about today, so Philip, thanks for joining me.
Philip Morgan: Hey, John. It’s great to be here.
John Jantsch: A lot of consultants, a lot of businesses today, I think, can benefit from specializing, from becoming known as the person that can help with X. I think there’s a lot of really good reasons to do it, but I do think there’s a lot of confusion about maybe how to do it or why to do it or what it’s going to mean. Let’s break a little bit of that down. Let’s first, I guess, get a baseline. When you’re talking to a company about specializing or position some certain specialization, what are you actually talking to them about?
Philip Morgan: I work primarily with self-employed software developers, so I’m going to pull an example from their world to make this super concrete, and hopefully it’ll be relevant for enough other folks in your audience. If you’re a self-employed software developer, it’s very likely that you got there through some circuitous route like you had a job for a while and you hated working for the man so you started working for yourself. Or maybe you got booted from your job, like a lot of people got laid off in, I don’t know, 2006, 2007, 2008. 2008 is when I sort of involuntarily accidentally became unemployed because I got laid off along with a bunch of other people.
Anyway, you probably arrive at self-employment through some sort of circuitous route, and you find yourself in this world where you have to help clients understand what’s valuable about you. If you’re a self-employed software developer, you’re going to gravitate towards your technical skills as the way that you tell clients what’s special about you. If you’re not a software developer, maybe if you’re a designer, you’re going to also likely gravitate towards your skills. You’re going to say, “Well, I do front-end design,” or, “I do user experience design.” If you’re a writer, you might say, “I write white papers,” or I’m this kind of writer. The common thread you might notice across all these things is they’re all focused on you, not your client.
You asked for me to kind of break down what specialization is. I would say the first thing that people need to understand about it is you have to specialize in a way that matters to your clients. There’s exactly five ways you can do that, and we can kind of walk through them. That’s the first big picture idea that I want to make sure people understand is you will be tempted to specialize in something that’s about you, like your skill set, like I’m a Rails developer or I’m a Java developer. You’ll kind of want to go around and start saying that’s how you specialize, but that’s not really a specialization. First of all, so many other people are doing the exact same thing, so there’s no meaningful differentiation. To explain what’s different, you have to bore people to death, because you’re telling them the intricacies of this approach to Java development versus this other approach. It very quickly becomes a not helpful way to think about specializing if you think about specializing in a skill set. So what’s left?
John Jantsch: It’s Java development for dentists.
Philip Morgan: Maybe, right? That’s one of five ways to do it, is to pick a target market, let’s say. That could be a market vertical, or that could be an audience. It works basically the same way. Market vertical would be what you said, dentists. An audience would be female entrepreneurs, for example. An audience is a group of people that have something they share in common, but it’s not the type of business they’re in. It’s something else like one that I’ve heard about recently is encore entrepreneurs, people who are kind of later in life and starting a new business later in life. That’s a fairly well-defined audience. Dentists would be market vertical. Manufacturing, retail, those are all market verticals. That’s one way you can specialize, is to pick a market vertical. I know I’m making it sound simple. It’s actually terrifying to people to do this. You pick a market vertical and you say, “My services are for this target audience.”
It feels weird to do it. At first, you have all kinds of questions like why would I pick one? Why wouldn’t I just serve all of them? That’s a whole nother thing we could talk about. I think the easiest way to think about why you would pick one is it makes it easier for people to refer you. You start to become more memorable, rather than, “Oh, I met this guy at this barbecue this weekend. He said he’s a developer, whatever that is.” All of a sudden, you move out of that category into a different category of, “Well, I talked to this guy at this barbecue this weekend. He’s a developer that focuses on helping manufacturing companies cut cost.”
John Jantsch: The implication is that he knows our business better, or he knows the challenges or the problems, or he’s seen how to get a result for a business like ours, because ours is so different from everyone else.
Philip Morgan: Exactly. That’s what you’re trying to do by specializing. That’s kind of the end goal, is that you can actually do that. You can actually produce measurably better results for your ideal client because you know how their business works. You’ve worked for other businesses like them. That’s the end point that you’re trying to get to by specializing, is that you can actually prove that you can do a better job for them or move the needle for their business more than you can for others, because you’ve specialized in that kind of business. That’s also what makes it scary at first, because if you’ve been a generalist, it’s quite common for you to have worked for a lot of different kind of businesses, but you haven’t really built up a pattern of working for the same kind of business.
John Jantsch: I’ll tell you something I’ve discovered in working and really trying to get people to narrow their focus. I’m not necessarily a proponent of you have to niche, you have to have a certain market, but I will tell you that in working with small business owners for a lot of years, one of the things I try to get them to do is rank their clients, their most profitable clients. I can’t tell you how many times they’ll go, “You know, I didn’t really know this, but 50% of our business, our most profitable business, comes from this vertical.” They’re actually doing it already. They’re hanging on to some of that other business to the detriment of doing it better. It really is kind of interesting. I think that scariness is actually probably just really kind of a myth.
Philip Morgan: You identified what would be the ideal point for someone to move away from being a generalist and start operating as a specialist, is if they could look at their previous clients and identify this pattern of, oh, that’s where the profit it. It’s whatever, these type of companies, manufacturing companies or some other type of company. The decision is a lot easier if you can see on paper some evidence that this is not going to blow up your business to narrow down and specialize. That’s the ideal sort of inflection point, is when you’ve got that critical mass of clients and you can see the pattern of, oh, these clients are better, and it’s always this of client that’s better or almost always.
John Jantsch: It’s amazing how often that’s there. They just don’t take the time to look at it or to analyze it. A lot of times, it’s happening for good reason, and they just haven’t identified it.
Philip Morgan: Yup. When I’m working with people, a lot of the work that I do, I take a step back from it. I’m like, “This is so simple. We’re just going to make a list, and we’re going to see if there’s any patterns in that list.” The list is your previous clients and the profitability and what market vertical they were in or what kind of problem you solved for them. Sometimes I’m almost embarrassed at the basicness of what it is that I do, but when people see those patterns, you’re absolutely right, John, they can say, “Oh, I see. Now the next step is much more clear.”
John Jantsch: Is it possible to specialize without actually identifying an industry? In other words, I’ve always felt like I’ve specialized, because I said, “Here’s how I’m going to work.” Somebody who wants a system that is a soup-to-nuts approach with a monthly retainer and they’re going to know what I’m going to do, what they’re going to do, and what the cost is. I can work across industries, but what I’m going to do is I’m going to attract a client for whom that is an approach they want.
Philip Morgan: There’s two ways of specializing that don’t involve focusing on a particular industry or vertical or even an audience. One is to focus on solving a problem. That’s part of what you just described, is the problem that you’re solving … and it’s not just this one problem. I know that. To sort of simplify what you just said, you’re focused on solving this problem, and the problem is I need a soup-to-nuts system. I need a comprehensive system for doing marketing. That’s one way to look at how you specialized, and that is a very viable way of specializing. Another example might be let’s say that you’re a marketer or a software developer and you focus on companies that are being disrupted by Amazon.com and helping them compete more effectively through whatever it is that you do. That’s another example of what we’d call a horizontal problem. Lots of different types of industries might be suffering disruption at the hands of Amazon, not just retail. I mean, now they’re moving into groceries, so there’s the perfect example. That’s one way to think about what you’re doing.
The other is you have packaged your services in a specific way, right? That’s another way to specialize, is where your focus is on a somewhat unique or very specific way of delivering your services so that it meets a certain type of client’s needs better than anything else. You’re sort of providing some kind of packaged materials combined with ongoing support or consulting at a fixed cost. I mean, a lot of people can go, “Marketing is scary. I don’t want to have to do all the work of developing this,” or, “It’s this kind of black box, and I’m not sure what I need to do.” You show up and say, “Well, do this. Do the following things. It’s a very well thought out system, and you’re not on your own. I’m going to be there via a retainer or whatever for an ongoing support role.” That’s another great example of specializing by customizing how you solve the problem.
John Jantsch: It has the effect, in some cases, of sort of making the competition maybe not irrelevant, but at least incomparable.
Philip Morgan: Exactly.
John Jantsch: That component alone allows you to stand out, I think.
Philip Morgan: Exactly, yeah. Software companies do this a lot. They’ll create these feature comparison tables where they’ve got columns and rows and their product in the first column and then all the competition in the columns to the right and lots of green checkmarks on their product and lots of red x’s on the competition. Of course, those are always a little bit cherry-picked.
John Jantsch: Sure.
Philip Morgan: They’re based on this idea, this principle, that you just mentioned, which is if you can be completely unique, then you effectively have no competition and you’re effectively a monopoly. That’s such a nice thing to be in that the US federal government tries to keep people out of that place because it’s so nice.
John Jantsch: Would it be your contention that every business should do this? You’re not probably going to say every, but would you say most businesses should be looking for some sort of specialization?
Philip Morgan: I would say for services businesses, for sure. I think you can make the argument that there are product businesses that work better without specializing. In other words, I’m willing to admit that there’s plenty of edge cases where specializing is … Maybe it’s something they need, but they don’t need it now. They need something else now. Every business goes through a sort of life cycle or an evolution.
John Jantsch: Sure.
Philip Morgan: Services businesses, small services businesses in particular. I’ve seen very few that could not benefit from specializing, with one big exception, which is if you’re brand new. If you started freelancing a couple months ago or just one or two years ago, if you started working for yourself. Earlier, John, you mentioned a lot of your clients can look at their client roster and see a pattern, and once they spot that pattern, it’s obvious that’s how they should specialize. If you’ve just been working for yourself for a year or two, you probably don’t have that body of previous experience to draw the pattern from. In that case, it may be beneficial to just spend a couple of years learning the ropes of working for yourself and functioning as a generalist.
John Jantsch: I actually advise a lot of consultants that I work with, because a lot of people have this what should my target market be? How should I narrow it? To some degree, my answer is, well, just go out there and try some stuff and see what works. See who you like working with. See what kind of engagements work. Maybe what’ll happen is you’ll work with a certain industry, they’ll tell their buddy, and next thing you know you’re like the modeling contractor marketing guru. When you’re coaching somebody and they’ve decided that it’s time for them to maybe specialize, what’s kind of the decision-making process for how to specialize? I don’t think you wake up one day and say, “By golly, we’re going to be the specialist in this now.”
Philip Morgan: On the one hand, I kind of wish people could have access to that experience, because that would be a lot easier. They wouldn’t have to spend money hiring me. For a lot of us, it’s a difficult decision. I think the reason why is it’s so personal. If you are more of an entrepreneur, you maybe have a little bit more of a mercenary kind of feeling about your work, where you’re like the reason I’m doing this is because it’s going to be an amazing business some day. It’s less driven by a feeling of craftsmanship or really enjoying making things. What I find is that a lot of folks who gravitate more towards services businesses, it’s very important that they actually literally enjoy their work.
It’s not going to be a cakewalk 24/7 to be in business for yourself, but I agree it’s important to enjoy your work. It needs to be fulfilling. That’s one of the first things I look at with people is where’s your interest. Sometimes there are surprises there. People are surprised to find that they might be interested in a market vertical like deep sea freight transport, for example, just pulling a recent example from a guy I’ve been working with. That was an interest to him. He’s got no previous experience there, but it’s interesting enough that it may be worth it to build up some experience in that vertical so he can specialize there. So we look at the interest.
The second thing I like to look at is your credibility. Credibility is not entirely your track record, but that’s a large part of it. What kind of work have you done in the past, and is that going to be credible enough to prospective clients that they start to trust you enough to pay you? Credibility. Your level of interest. Then, the third really big factor is is there going to be demand in the market for what you do? An example might be if I love building websites but I want to specialize in … What would be a good example? Actually, dentists might be a good example. I look around and I see dentists, and I’m like, “Wow, they have so many crappy dentist websites. Maybe I’ll specialize in building awesome, beautiful, custom websites for dentists, and I’m going to do it all from scratch. We’re not going to use Squarespace. We’re not going to use any off-the-shelf WordPress themes. We’re going to do it all from scratch.” I’m not sure, but I predict you would have a hard time selling those services to that target market, because a lot of dentists are like, “Look, many, my ugly website is good enough. I get most of my work through referrals. I don’t need your $15,000 website package.”
That’s the third big thing is does the market actually need what you’re doing? John, that’s the sort of abbreviated answer to your question. I look at those three things first, your interest, your credibility, and does the market need what it is you’re thinking about selling to them in a specialized way?
John Jantsch: So let’s assume we’ve done the soul searching and we’re committed on interest. We’ve done enough work in that industry to credibly put the message out there, and there is demand. What’s the payoff for somebody that kind of nails all three of those?
Philip Morgan: A couple things happen. One of the first things that happens is something that has always been a struggle, which is marketing becomes less of a struggle. The reason that it was always a struggle is you’re doing it at the highest possible difficulty level if you don’t know exactly who you’re trying to reach and exactly what kinds of problems you can solve for them. If you don’t know those two things, then no one is going to be a good marketer. Steve Jobs would not be a good marketer in those circumstances. You know what I mean?
John Jantsch: Yup.
Philip Morgan: Seth Godin would not be a good marketer under those conditions. You remove that uncertainty about who you’re trying to reach and what kinds of problems you can help them solve in a valuable way, and all of a sudden, it just becomes automatically easier to do anything, whether you’re doing inbound marketing and creating content marketing, for example. That becomes easier. If you’re doing outbound marketing and struggling to get people to respond to cold emails, that usually starts working better. All of a sudden, you’ve got this specificity that people resonate with. That’s one of the first things that changes. As you develop experience which is truly unique to you and your focus on that market and truly valuable, you can just start charging more, because you can prove to clients that you’re going to move the needle for their business. Or maybe it’s not so much about moving the needle, but you just become so good at what you do that you can do it in half the time. So maybe you don’t change your rates at all, but you just spend half the time doing what you used to do to make $5,000 or $10,000. Well, that’s a significant increase in profitability.
Those are the two biggest things most people might notice. One thing that’s more subtle is that you become more confident in talking with prospective clients or in managing your active clients. You come from this place where you’re like, A, you want to help them and, B, you know better than they do how to help them, so you can actually start to lead the project. Clients notice this from the first second they’re on a sales call with you. They notice this confidence, and it’s like a magnetic force.
John Jantsch: You didn’t put it in tangible terms, but for me, customer lifetime value increases because, if nothing else, margin goes way down because you’re serving clients. Then, cost to acquire a customer. Just the fact of the matter is if you’re trying to reach a vertical market, you’re advertising cost is going to be lower because it’s smaller than trying to reach the world. There’s a lot of things that, from a metric standpoint, are pretty easy to point to.
Philip Morgan: In the best case, you spend literally nothing finding clients or advertising, and they just find you, either word-of-mouth referrals or inbound marketing starts to become super effective.
John Jantsch: Absolutely. Well, Philip, tell people where they can find you and more about your work.
Philip Morgan: I like to point folks to an email crash course that I’ve put together on the subject of positioning and specializing. It’s called positioningcrashcourse.com is the website where you can go sign up for that. That is the best way. Once you’re on my email list, I sort of become your best friend. I’m happy to answer questions that you might have or what have you. I would just say go to positioningcrashcourse.com.