143 The 6 Risks Of Niching Your Accounting Firm

We've talked a lot about specialization and getting more specific about the people that you help and how that can lead to a place where people will pay twice as much for the work that you already do. But pump the brakes buddy. What are the risks of that? Let's navigate the counter arguments to that. Are they valid? Should it impact the strategies that you either take or don't take when you are thinking about niching down? Would it impact what niche you choose? Whether you choose several niches? Lets explore the counter arguments on today's installment of Jason Dailey. Thought experiment from a dm. What happens when you put all your eggs into that niche basket? And because you have no client diversity, you see an entire client base evaporate due to something outside your control. Think about folks that serve restaurants. Pandemic hits, they all shut down. What if there's a bee disease that kills the bees? The bees and your beekeepers are up a crick. Risks are everywhere. But hyper niching feels like in some senses it can pose a greater business service risk. Let's talk about it. What are the risks associated with niching down and getting more specialized? So I got a list here. The top six risks of niching down your accounting firm. Number one, what do they all go out of business? What if that happens overnight? It's definitely a possibility. Admittedly it's kind of hard to put my finger on many examples of that, like snapping your finger and that stuff goes away. I mean obviously Covid was exceptional and Covid shut down a lot of stuff overnight. But I would say your restaurant clients like needed you more than ever during COVID Like you had this Covid relief and stuff like that. And they didn't have any money overnight but man, they were doing stuff like trying to transition to takeout to delivery services. All of these things. You are never needed more than during COVID in the case of restaurants. Now I can absolutely relate to the notion of people not having money to pay you. I think I've shared this before. This is about as dramatic of an example as you could probably get. I was niching into dental and we had transitioned a number of our clients to paying a US as a percentage of collections. And in Oregon overnight they shut down all non emergency dental stuff. And so poof, literally the entire niche like goes to zero overnight with that collection based approach. And what we did is we had to like sit down with these people and be like, do you still want our help? And they're like yes. And we had to muddle through that and like definitely Discount some stuff. And the reality was they weren't running our their practices. So like their needs were very different. The operational needs did a nosedive. The advisory needs were absolutely through the ceiling. Like we provided more value to those people during COVID than maybe any other time. Cause we were on top of the ERC stuff, We were on top of the PPP stuff. All the code relief was so central to like keeping those people healthy, I don't know, not alive, like they were going to be fine. But that stuff was so important. Like in the US you had the Eidl loans in the beginning and that was the first money that most people got. But ultimately they came back and like we got through that. Covid's weird. Like there's a million examples of this with COVID and all from events industries to like hospitality and all sorts of stuff. But beyond that, I don't know how common it is that something like wipes out an entire industry overnight. But is it a risk? Certainly this is why some people make the argument of having like two or three niches at a time. And I would say having, you know, three areas of specialization is a whole lot better than having no areas of specialization. One thing that this calculation kind of top of the head math misses and oversimplifies is how much nuance and how many new things you find when you do specialize. Because take dental for example. You go into dental, let's say, you start turning up at conferences and you learn all the people locally who are the suppliers and the lab companies and like all the peripheral support companies that go into this stuff and you find there's actually a whole bunch of industries that support dental. And all of these people, they need help too. And who better understands them than the ones who have already like done some work in the space? So I would argue most of the time when you start down a path, you actually see a whole bunch of other adjacent opportunities that sometimes will be fundamentally better opportunities. Maybe I learned that actually there's a bunch of money to be made in being the go to firm for lab companies. And you kind of make that adjacent move into this thing that was related, but you only ended up there because of where you started. And so it's not quite as like linear as that where you go down this path and you're just going to work with beekeepers and that's it. And if beekeepers go away, then you pull back, you go down that path and then you learn about that entire ecosystem and how much nuance there actually is. And the further in my opinion, the further down that like nuanced trail you go, the more specialized, the more unique and the more scarce you are. There's like, I think there's a degree of pride to be taken in doing something that normal people don't understand. And it's because it is so nuanced and so specific to a very specific need that folks who don't have their heads into that are like, what, what even is that I don't understand. But ultimately that, ultimately that specialization to me is what protects you from general stuff. Like look at ChatGPT and how good it can do. Certain general things we worry about how are we going to keep away from productization and automated solutions coming up market and solving more problems like the answer is just specialization is having a really deep, nuanced understanding of how things and how certain categories work. And right now you might be one step away from beekeepers, but when you walk through that door, I guarantee you there's 10 other steps, 10 other possibilities within that space. People who serve beekeepers, maybe butterfly keepers. From here you can only see that next thing, right? Maybe you've got one of those clients right now and you're like, maybe I'll do some more of that. From there you're going to see a whole bunch of other stuff. And that takes some, some trust in believing that that complexity is there. But it absolutely is. And it's the same reason you get a four year degree in a specific thing and the same reason you go into accounting and you focus on doing tax or accounting or audit. Longer term, the value of us doing general things I think erodes like the general stuff becomes less and less valuable. But even today, and you can run a general firm and be plenty profitable and have a good lifestyle around it, but even today I would argue like as the deeper you go, the easier it is to run a really profitable firm that's hyper flexible. Foreign this episode is sponsored in part by Live Flow. Live Flow is the easiest way to sync that QuickBooks data back and forth to your spreadsheets. You may have seen this actually had a big announcement lately. So this fall G2 gave them the top spot in their fall 2023 report as the leader in the financial analysis category. That's right, they won number one. Nice work. If you've been around my channels for a while, you've seen Live Flow kindly. They have sponsored quite a bit of stuff. And I'm not, I mean I'm not saying I'm taking credit for it, but that was probably why I'M not familiar with Live Flow. Super easy way to sync that stuff. Sync your QuickBooks data back and forth with Google Sheets. They got a whole pile of templates too to make the process of building that stuff for the first time as easy as possible for you. Stuff for managing cache, AP KPIs, like everything you can imagine. Sync that data into your existing sheets to make them smarter. Get it to auto sync or build your like custom new sheets that talk with QuickBooks totally from scratch. Pretty cool tool. Check that one out at LifeFlow IO. This episode is sponsored in part by Forwardly Are you tired of waiting for payments that seem to operate on their schedule, not yours? What the heck. Say goodbye to slowed ACH transfers and rising credit card fees. Welcome to Forwardly, where you can receive payments instantly in 22 seconds. What? Okay, sidebar thought experiment. I just initiated a payment to you put a PIN in that receive payments instantly 22 seconds for 80% less and no monthly fees. I like that. With automatic payment options and automatic reconciliation with QBO and Xero, Forwardly streamlines the whole payment process. Same day. Ach man, I don't know why this hasn't been normalized like everywhere. Why are we not doing more same to achieve? By the way, your payment that I just started, it just arrived. It's been 22 seconds. How fast was that? Legal has informed me. I need to say I have not in fact paid you just to clear that up. Just a mental exercise. The future of business payments is here. It's here and waiting for you@forwardly.com check out the link in the show notes to learn more. Now, second risk not being able to find enough clients. The fact that you're just going to fundamentally have a much smaller pool of clients. Let's say I start going to work for lab companies and you know lab companies are going through change because if you work in the space, you've got like dentists buying Sterek machines and doing some of the lab company stuff in house. And that technology's getting better and it's changing a dentist's need for a lab company. And so there's fears around that. But then they're getting into other new stuff. But if all I'm going to serve as lab companies and I still got the same landing page that I have right now, which is hi, I'm Jim Thompson and I do accounting, tax, estate planning, tax resolution, bookkeeping, financial advisory, virtual cfo, controllership, gift tax returns, and technology consulting. If your landing page is just that, you're probably not going to find lab companies. So risk number two, not being able to find enough customers. That's absolutely going to be a problem unless you change your behavior and really invest in like working with more of these types of folks. Because you're going to get a lot of work from referrals from folks within the space. But the beauty of serving a very specific type of need is you can now turn up at those very specific places where those people hang out and you can talk about the very specific problems that they have online. The world doesn't need another person posting a picture of their breakfast online. But there's so many cool little corners of the business world where if somebody could just find an accountant that deeply understood the problems of running that specific type of business, they would stop dead in their tracks and be like, yes, like finally I found this person. And there's so much opportunity in those little, little corners right now. And we've talked about this, I mean at length before, but as long as you're a generalist, you're not really speaking to anyone with your messaging because everybody says that they're a generalist. Right? And so it's counterintuitive, but in many ways it's actually easier to find a better customer when you're solving a very specific problem. It's arguably the biggest reason to do it is you got this person that's going to value your expertise more and it ought to be easier to find them because they're congregating in these specific places and they talk online about these very specific to them problems. I want to read you this snippet from a newsletter newsletter by Ellen Donnelly. It's called the Ask. The Ask newsletter on substack. I like this clip on the subject of niching. Entrepreneurs are ambitious and want to work on big problems. We see companies like Amazon, Google and Tesco creating and selling thousands of products and know that everyone is a potential customer. Therefore, it feels counterintuitive to say you can't create a breadth of products and services for different people. Surely there is more business available by doing this. We also see in the world of social media how big audiences and more likes and followers equates to success. You've made it if lots of people know about you. So why would you pick a small group of people and exclude the rest? Surely that's leaving money on the table and not taking full advantage, right? These concerns are forgetting that most businesses begin niche. Successful businesses tend to dominate one market segment first and then go to tackle the others. Amazon began with books. Google ranked the importance of webpage links, et cetera. I do really think the like. And the social media thing, that's a, like, I like that analogy. The vanity metrics of mainstream, whatever you want to call it, celebrity social media influency type stuff. The big brain, really impressive people that write the general books that we all read. The vanity of that. I think just being like realistic and mindful of the human condition, it is alluring. Like, it's attractive, the notion that you could be a solution for everybody. And I think that's part of why we shy away from the notion that we can't help everybody. Like, for many of us, there's probably some very real ego there. And getting specific doesn't mean that you can't help everyone. Cause you probably can. It just means that you can better help a more specific type of person. Third risk of niching down your accounting firm. What if it means that I have to give up awesome client X that I have today? Yeah, the, the fear of like this divorce to your firm as it is, and the clients have. You have as you have them and all that stuff. And this is another reason why I have kind of been an advocate of gradually building that practice alongside your traditional practice. If you've got great clients already and you don't want to part ways with them, in my mind, I probably only makes sense to part ways with them. If you are building this other practice that by comparison just blows the doors off of it. Like it needs to be fundamentally better. Now there's probably a threshold at which like doing totally different thing for a few clients probably doesn't make sense. But from a real practical standpoint, like, yeah, you're not gonna drop that client unless it just fundamentally no longer makes sense to serve that client. Like, this new type of business is making twice as much money or something like that, or it's one less person that could potentially be referring you other, you know, dental labs. Right. And it may mean like giving up that, I don't know the version of what that firm has been in the past. But I think what we miss is the fact that we don't have a clear vision into how rad that next firm can be and the fact that it's, I don't know, fundamentally more profitable, potentially more enjoyable than the one that you're building right now. It's hard to visualize that because you can see the fun you're having today if you are having fun, but you can't see like the possibility in that next sort of domain. I know for Myself personally, like, why don't I go make content that's just for anybody or tech content or AI content or something like that. This episode is sponsored in part by Copilot. Okay, gang, circle around. Bring it in. It is change management season for most accounting firms. You're going through some hard tech decisions. Honestly, it is spooky and like high stakes and really hard to decide because there's a bunch of solutions out there, frankly, a lot of good solutions. But it is high stakes because if we go like switch all this stuff, how are we gonna ever unwind that? What if we don't like it? Or if we go put this thing in front of a bunch of clients? What if they all revolt or we don't end up liking that? And the more stuff we're changing, the more risk there is inherent in that. And I actually think this is a solid argument for Copilot who is only tackling the client portal problem. And if you've watched much of my stuff, you know how adamant I am about the value of client requests, about clients being able to self service in a portal to come get a tax return or a month on close or so they don't have to email you for that stuff because it's 2023 and you should have a website where people can get that stuff. But if you're stuck on changing, I don't know, too much at once, or the notion of chucking all your stuff into this all in one tool where it's like, well, what if I like the workflow better over here in the portal over there? Actually, I think this is a solid argument for Copilot. All they're doing is trying to give you the most flexible client portal experience out there. You can embed stuff from external services, they got a bunch of their own built in goodies, but they are really wanting to build a platform, not like a super opinionated portal so you can customize it to be whatever you need. So that sounds good to you? Check out Copilot at the link in the show notes. This episode is sponsored in part by the fine folks at Cloud Accountant Staffing. Do you hire accountants? Bless your little heart. Not the best part of the job in my opinion. Not something I ever enjoyed. Well, listen, you can build your accounting dream team. Dream team with talented offshore accountants in the Philippines that work 100% full time for your firm. Their accountants aren't freelancing or contracting for multiple firms. They're all yours. They work exclusively for you and are incentivized to stay with you and your team, long term, they're not gonna get swiped. Cloud account staffing is 100% dedicated to the accounting industry and founded by a former accounting firm owner that understands your business, knows your pain points. They had to hire some accountants and they said, you know what, we're gonna build our own pipeline in the Philippines, gonna pull in some super talented people and then open that up to other firms. Basically that's the story I've been talking about a lot about staffing, building more resilient staffing pipelines for your firms. I had staff in the Philippines like totally red pilled me to like, oh geez, like we need to globalize the way that we get our work done. Check these folks out link in the show description Cloud accountantstaffing.com and to be honest, I really enjoy the specificity of all that stuff through the lens of public accounting and running accounting firms. It's something that I know a lot about and I certainly could build a more general audience that would, that I mean just by the nature of how many more people are to reach, it would absolutely be bigger. But what I enjoy I've actually found because I've kind of like stop started down this path a couple times and I'll go to like script a video and when I get outside of the accounting space to do that, I find that I don't enjoy it quite so much because I don't have those constraints that I know how to like kind of work within really well. Like there's this sort of limiting aspect of, of sticking within a domain that keeps you more focused on a more like hyper relevant type of problem and type of discussion and there's a hundred different angles to come at it. Obviously this is a freaking daily podcast, but I actually find a lot of joy in that specificity because I can go deeper with people and I can go deeper on problems. If somebody can go out and read a general business book and that speaks to them more than anything else. To me it probably means that there just isn't a book out there that is hyper specific to the things that they do. And in most spaces there isn't like there aren't talented people going out and making content around the very specific things that they do. And the more general that advice is kind of, it can kind of only be so good and so helpful and there's some killer general stuff out there. But the more specific you get, the lower that bar becomes. It's easier to make stuff that is super helpful and super specific to those folks. I don't Want to post on social media and be up against every single other person that prepares taxes or every other accountant, Nobody's going to find me. Frankly, I don't have anything that meaningful to say that's like, fundamentally better than everybody else. But if I can develop a deep understanding of a specific type of person, I could totally win that. Like, find the level of specificity where you can win, where you can beat the algorithm. And, like, those are the things that people will see. Now, there's absolutely people that are like, aaa phenomenal at this stuff and they can win at the mainstream level, but it's probably not you. I didn't want to be the one to tell you that, but it probably probably isn't. The more specific we can get, like, the easier it is, the easier it is to be helpful. Fourth risk of niching down. What if I choose the wrong one? I'm going to level with you. You probably will choose the wrong one. Like, that's. I mean, that's kind of how it goes. That's an argument for maybe not just doing one. The problem is, though, if you never try, you never learn about the process of niching down. Like, people just expect to, like, yolo, throw a dart at a board one day and be, yep, here we go, beekeepers. I'm gonna do this for the next 60 years. That's just not how it's gonna be. But you're gonna learn a whole heck of a lot along the way. That's why I think it's worth, like, just diving in and getting started. Doesn't mean that you're gonna fire all of your clients tomorrow. That's never what this should look like. But pick something, go deep, Start turning up at conferences. Learn what you like about it and what you don't like about it. Worst case scenario, you know how to do the next one better, right? And that is not wasted time because that's not any worse than what you're doing right now, which is everything. Fifth risk. What if I get bored of the subject matter? It's a possibility for sure for myself, honestly, I. I definitely haven't had that problem. Like, I enjoy going deeper and finding the nuance and learning more. Like, this year, I've learned a ton about how software companies operate in this space and kind of the challenge that they face working with accountants. And I feel like now I've got a better understanding of the ecosystem and everything that's happening sort of as a whole, outwardly. Like, we can only kind of see things sort of surface deep because we aren't in it. But when you get in there, I feel like there's almost always more there than you thought there was. And then sixth, what if I lose my ability to be a jack of all trades? I know there's like this romantic notion of being good at everything, but who do you know that's actually good at everything? Right? Like if you're trying to do everything, you're probably only doing it to a certain level of goodness. And that goodness level isn't the same for all of us. And the reality is like the way that the world is moving, I mean, you've got stuff like TurboTax where like before the first turbo tax dropped back in the day, like there were people doing really simple returns and that displaced them. You got stuff like ChatGPT now. And what AI is doing, software is, is eating generalism like that, that notion that you can do a little bit of everything, just not at a very deep level. And for me, maybe the most powerful argument for specialization is, let's say you strip the business argument away from all of this stuff and you think of it as actually investing in yourself, like as a human being, developing a new skill set that you're going to take, you know, and knowledge that you're going to take to the grave. What is the best investment to make in yourself? For me, what I enjoy is like really going deep on something, frankly, going deep on a few different things that are complementary to each other and stripping away the traps of like, business advice and the really short term thinking of like, how will this impact this client or this current circumstance. Honestly, I think specialization is also like an investment in you as a person and where it will take you next, which is probably every bit as big a deal as what it's going to do for you tomorrow. And it all comes back to trusting, like what's on the other side of that thing that you haven't quite explored yet. But until you do explore it, you're never going to know it's on the other side. I think people make that exploration at different rates. You can look around people and you can see. You can look around and see people that are very curious and quick to make those decisions and they will go from thing to thing. Sometimes that happens in a distracted way, but also sometimes that happens in like a very accelerated way where they're getting pulled into, you know, new opportunities and a level of depth that maybe you haven't explored yet. The best version of being an advisor, I think, is the one who has like the version that has the deepest, deepest understanding of the problems that people have. The room where you can be the most helpful. And that's not a big room. It shouldn't be a big room. Set yourself up so that there's a small room of people somewhere who you can be unbelievably helpful for. That's both a killer business to run, but also pretty cool aspirational. Like aspirationally and really rewarding to be able to be that for folks. I don't know. I try to like flesh out both sides of this. Obviously, you know where I stand on it. We all have different blockers for maybe why we don't go into this stuff. If you're stuck on something, man, drop it in the comments. I don't want to say that any of these things are invalid. They're all things that for sure have to be managed and have validity, but they also block the upsides. And I would say, especially if you're at a point where it's like, man, I'm struggling right now. Sometimes we also don't do the calculation of what if we don't change. Like, can I do this for another decade? Something to think about as well. Thanks for coming and hanging today. I'll see you in the next one.