A Process For Deciding How To Specialize
None of the 5 ways of specializing is naturally superior; they all come with tradeoffs in terms of risk and business development difficulty. But one of them will be right for you and your business, and there is a repeatable process for arriving at that point of clarity. Here’s an overview, followed by DIY-level detail on each step:
- Assess your current situation by inventorying past experience, areas of interest, and entrepreneurial theses.
- Assess your risk profile.
- Create a shortlist of specialization opportunities.
- Apply guardrails to your shortlist.
- Choose depth of validation for your shortlist options.
In guiding hundreds of business owners through this process of specializing, I’ve observed 3 patterns that describe how they make the decision. We tend to do one of the following:
- Leverage a head start.
- Pursue an interest in serving a particular kind of business or solving a particular kind of problem.
- Pursue an entrepreneurial thesis.
I’ll briefly explain each.
Leverage a Head Start
A head start is some relative advantage that you possess. Building on an advantage is a specialization accelerant and a risk reducer, at least compared to undertaking the same specialization journey without that head start.
You can specialize without any particular head start, but if you ignore a signifiant head start, you’re making more work for yourself. You might decide to do this for good reasons, but understand what you’re giving up by ignoring that head start.
Head starts generally take the form of one or more of these advantages:
- A significant depth or quality of access, or large number of connections, to a target market.
- A significant amount of credibility in a market vertical or within a certain audience.
- A significant depth of expertise in some area.
- A significant depth of insight into a target market’s needs or business realities.
- A significant ability to earn trust from prospects or clients.
Find Your People/Opportunity
What kind of clients do you prefer to serve, or what problems do you find most fascinating and compelling? Folks who use the Find Your People/Opportunity approach to specializing choose their focus based on an aspiration to work with a certain type of client or problem rather than a head start that gives them a relative advantage there.
Note: “Clients that pay their invoices on time” is not a valid choice here.
You need to define a target market horizontally or vertically, not based on personal preferences that make you look weirdly picky or self-centered.
The Find Your People/Opportunity approach to deciding how to specialize is more risky. This is a good place to remind you that for all the power, reach, and flexibility that modern digital marketing gives us for generating leads, and for all the power that Google and LinkedIn give buyers for finding solutions they may not have been aware of before they searched, you’re still in a relationship business.
Your ability to forge trusting relationships with buyers is the beating heart of your ability to run a thriving consulting business. This doesn’t mean you need to be an extrovert or have world-class people skills. Lots of nerdy introverts, like myself, do it without those qualities. The risk the Find Your People/Opportunity approach poses to you is that you could choose to specialize in a way where it’s difficult or impractical for you to forge trusting relationships with enough buyers to make it work.
If you’re using the Leverage Your Head Start approach, you’re probably going to specialize in a vertical or problem you have past experience with. You’ll know what to expect. You may already have a useful amount of access to buyers or credibility. With the Find Your People/Opportunity approach, you may be moving into unfamiliar territory with surprises in store for you. The solution, of course, is to do some market research to make the new territory less unfamiliar.
The final decision making approach I’ve seen out in the wild is what I call the Entrepreneurial Thesis. This is actually a variation of the Find Your People/Opportunity approach, but it’s better suited to someone who is more mercenary or entrepreneurial in their overall orientation to risk & opportunity. This mercenary or entrepreneurial orientation is often correlated with a reduced need for craftsman-like enjoyment of the work. Or perhaps the craftsmanship shows up in the design of the business rather than the delivery of services.
Instead of looking for what kind of clients you prefer to serve, or what problems you find most fascinating and compelling, you are looking for the opportunity that seems like the best bridge from your current position to a significant entrepreneurial opportunity; one that you can scale with process, people, or intellectual property.
These three decision making approaches are baked into the process below, so you don’t have to explicitly choose one of them to use. I’ve listen them in order of riskiness. Leveraging a Head Start is the least risky way to specialize, while the Entrepreneurial Thesis is the most risky. I wanted to explain these approaches at this point in this article because they provide helpful context before we dive into the actual decision making process. That’s next.
1: Assess Your Current Situation
The decision making process I’m about to describe begins with a written inventory of your previous experience. I know you have all this information in your head, but writing it down does a few important things. First, it helps you remember everything; writing things down just seems to do that as a natural by-product. Second, it helps you remember more objectively, with less emotion and less of the “fog of
war client work” interfering. And finally, it helps you spot patterns more readily when it’s all written down.
You should definitely create your inventory using a tabular tool like a spreadsheet. It will make organizing it and looking for patterns much easier.
Inventory the following items:
Vertical Inventory: Inventory everything you’ve ever done for clients, employers, and any substantial side-projects. For each thing in your inventory, include:
- Client name
- Market vertical that client is in
- The business outcome of what you did for that client
Horizontal Inventory: Add to your inventory all horizontal abilities you currently have that help you move the needle for clients. The following are examples of horizontal abilities:
- Increase conversion rate on e-commerce stores
- Reduce downtime for critical infrastructure
- Integrate ERP with other systems
- Reduce cognitive load of using software
Entrepreneurial Theses Inventory: Add to your inventory all entrepreneurial theses you’re interested in possibly pursuing.
The difference between this and the horizontal inventory is that you might have to put together a team, or rent skill you don’t have, or build something that requires up-front investment, or just generally take on more risk — perhaps by pursuing a specialization you just can’t validate but you believe deeply in — as part of building your market position.
Next, extend your inventory: Add to it all verticals that interest you, even if you haven’t worked in them before. Make sure you have an uninterrupted hour or two before you do this next step.
Go to https://www.naics.com/naics-drilldown-table/. Slowly read every top level item in the list of market verticals there.
Pause after you read each item. Let your imagination wander a bit. Ask yourself the following questions:
- “Is there more to this market vertical than I might think at first?”
- “Are there possibly companies in this market vertical that are struggling to effectively use technology that I have experience with?”
- “Would companies in this market vertical possibly get excited about the potential of what I could build for them?”
- “Does this market vertical have smart consultants like me throwing themselves at it, or is it likely to be under-supplied with tech talent?”
As you do this, you are looking inside yourself to see if there is movement towards or away from each market vertical on the NAICS list. When you consider a market vertical like, let’s say pharmaceuticals, does your imagination light up at least a little bit? Or does it contract at the thought of dealing with companies in that vertical? It does not matter why, you are simply looking for a subtle “yes” or “no” from your inner self.
If a market vertical gives you that subtle yes, then click into that top-level vertical on the NAICS site to explore the subcategories. Do the same kind of inquiry for each subcategory.
Add any NAICS subcategories that interest you — ones that you get a subtle yes to — to your inventory. It does not matter if you have never worked in the vertical before. Just add it to your list.
Also add all horizontal abilities that interest you, even if you have only a poorly developed version of these abilities. The NAICS list won’t help you with the ideation here, so try to think about problems or ways of improving a business that are a) interesting to you personally and b) likely to effect businesses across multiple verticals.
Quantifying: Go back through your inventory and score each item according to the criteria below. As you do this scoring, use a scale of 1 to 3 (whole numbers only) to keep things simple and avoid analysis paralysis. 3 represents a lot of something (access, credibility, etc.), and 1 represents very little of it.
You’re using a spreadsheet for this inventory, right? If you’ve listed each item in your inventory on a different row, then just add columns to keep track of the score you give each item along each of these aspects:
Access: how deep does your business or personal network extend into this market vertical or area of opportunity? Score from 1 (very little) to 3 (a lot).
Credibility: how credible will prospects find you? Have you produced results for them before? Can you “read their mind” during a sales conversation? Score from 1 to 3 (whole numbers only!).
Impact: For rows on your inventory that describe actual client work (rather than verticals or horizontals or entrepreneurial theses that you are interested in but have never worked in before) score the impact your work had for your client. Did it make them money, save them money, increase efficiency, or help them achieve a strategic advantage of any kind? If so, that’s impact. Your scores should be relative to other work your business has done, not work other businesses or your competitors have done. Score from 1 to 3. (For example: imagine you have completed a project in each of 3 different verticals. The projects saved your clients 5%, 7%, and 10% of something, respectively. At one of those clients, you are aware a competitor saved that client 15%. You would rate the impact your work had at each of those 3 clients based on your performance, not your competitors performance.)
Profitability: For rows on your inventory that describe actual client work, score how profitable the work was for your business. Score from 1 to 3
Interest: What is your personal level of interest in this area? If you’re a small firm or soloist, your ability to delegate away uninteresting stuff may be limited, so set a low score for stuff you’re un-interested in. Score from 1 to 3
2: Assess Your Risk Profile
There’s no “scientific” way to measure risk or a person’s risk profile. This is part of what makes it such a fascinating phenomenon to study. It’s somewhere between falling in love (quite mysterious; very unmeasurable) and predicting the weather (possible but always imperfect).
If you find this upsetting, that in itself tells you something important about your relationship to risk: you dislike the uncertainty part!
That said, your answers to a few simple questions about your feelings about and behavior with uncertainty, potential financial loss, and volatility can lead you to a reasonable understanding of your risk profile. As you answer these questions, you certainly can try to fool yourself, but that’s on you.
If you attempt to give honest, objective answers, this risk profile self-assessment will be more useful.
Please take a few minutes to complete this self-assessment now.
3: Create A Shortlist Of Specialization Opportunities
At this point, you almost surely have a big, messy inventory. Let’s turn it into a more usable shortlist.
You’re using a spreadsheet for this inventory, right? I hope so, because I’d recommend at this point you add two columns containing formulas:
Aggregate score = Impact score + Profit score + Interest score
Risk score = 7 - Access score - Credibility score
At this point, each opportunity described in your inventory has a rough quantitative score describing the potential attractiveness of that opportunity and the risk of that opportunity. Is this scoring perfect? No. Can you totally delegate your decision making to this score? No.
What you do have is a simple, useful way to prioritize opportunity and weigh risk. This is profoundly useful for moving you into a more objective place from which to make the specialization decision.
Sort your inventory in a way that puts opportunities with the highest Aggregate score at the top of the list.
Flag opportunities that are too risky. You’ve got your risk profile score from the self-assessment, so flag any items on your inventory that have a risk score that’s higher than your risk profile score. The measurement scale of the risk profile self-assessment is designed to match the measurement scale of the inventory risk score, so you can use your risk profile self-assessment score as a simple “risk threshold” and discard items on your inventory that exceed that risk threshold.
Now flag opportunities that have one of the following deal-breaker flaws:
Low importance: Buyers see the service offering as un-important. Trying to change their perception is somewhere between difficult and impossible, so treat this as a deal-breaker flaw.
Excessively long buying cycle: If you have the runway to handle a long buying cycle, great! But if you don’t, it’s a deal-breaker flaw.
Accessibility: A market with 10,000 prospects that you can’t reach is the same thing to your business as a market with 0 prospects. Do you have a repeatable way to access at least a few buyers or decision-makers or recommenders? If not, then you’ll need to create one to successfully move past this potential deal-breaker.
External forces: Are any external threats to your market apparent? Keep in mind that external forces (changes in regulation, disruptive competitors, economic impacts focused on a single sector) are not always a threat to you even if they are a threat to your clients. Your value as a specialist consultant may come from helping your clients navigate external threats.
Marketing approach: Do you understand what marketing approach will work well for the prospects you want to reach? You can not dictate to your prospects which marketing approach is ideal for reaching them. They get to decide that, and you can only decide whether you want to work with their preferred approach(s) or be ignored.
You now have an inventory that’s sorted by the attractiveness of the opportunities, and you’ve flagged specialization opportunities that are potentially too risky or suffer deal-breaker flaws. You have a shortlist.
4: Apply Guardrails To Your Shortlist
Next, you are going to apply “guardrails” to the specialization options on your shortlist. This part of the process is full of judgement calls and a need for your creativity and problem-solving ability.
For every vertical specialization option on your shortlist, use LinkedIn Sales Navigator to find accounts (that’s LinkedIn’s term for companies. You’re not looking for people at this stage of things, you’re looking for companies). You’re looking for accounts that match the vertical you’re investigating.
For example, perhaps you have the Manufacturing vertical listed on your inventory. Annoyingly, LinkedIn does not have that vertical listed in the Industries search field. LinkedIn does, however, have many of the sub-verticals within Manufacturing listed in its Industries search field. This is where your creativity and problem-solving ability is required to construct a decent search. This list of LinkedIn’s industry categories may be helpful: https://docs.microsoft.com/en-us/linkedin/shared/references/reference-tables/industry-codes
Use a column on your inventory sheet to document the number of prospects (companies that are probably big enough to afford you and small enough to take you seriously) in each vertical on your shortlist.
It has always been difficult to validate a horizontal specialization, because the market demand that drives these kinds of specializations is somewhere between difficult to measure and outright invisible. The best reasonably easy proxy measurements are forms of documentable interest. If there’s existing competition, that’s evidence of interest in this area of specialization. And if there are existing ecosystems of support (conferences, forums, online watering holes, etc.), that’s another form of evidence that you might be able to make a horizontal specialization work.
Use a column in your inventory sheet to document any evidence of interest you can find.
To discover competition, you’ll want to use a combination of web search (Google, etc.), directories (Clutch.co, etc.), and LinkedIn Sales Navigator.
To discover ecosystems of support, you’ll want to use web search and any other tricks you can make use of (asking in an online group you’re already part of, etc.).
This is challenging work! That’s why we’ve saved it until towards the end of the process: to make sure you deploy this high-effort work only on shortlist items that are interesting to you.
Here are the guardrail criteria I’d suggest you use:
- If a potential vertical specialization has fewer than 1,000 prospects or more than 10,000 prospects, re-define the vertical or remove it from your shortlist of options. Re-defining the vertical might mean finding a sub-vertical with fewer than 10k prospects or finding a broader version of a tiny vertical that has fewer than 1k prospects. These numbers are based on David C. Baker’s well-researched numbers with his lower bound of 2k tweaked downward to reflect the fact that many of you are soloists: https://www.davidcbaker.com/how-man-competitors-and-prospects-should-you-have
- If a potential specialization of any kind has fewer than 10 competitors or more than 100 competitors, it’s a risky option because the presence of too little competition (< 10 competitors) is a proxy for too little market demand and the presence of too much competition (> 100 competitors) signals a “red ocean” full of excessive competition. If you’re pursuing an entrepreneurial thesis, it’s normal for there to be little or no competition, but if you want a low-risk specialization, eliminate or re-define shortlist options that have the wrong amount of competition in the market.
- If a horizontal specialization has no ecosystems of support, remove it from your shortlist of options. Yes, you can make a horizontal specialization work even if there are no ecosystems of support, but it’s harder, so this guardrailing criteria suggests that you remove these more difficult options from your shortlist.
After you do this step, you will end up with a “shorterlist” of specialization options. Specialization hypotheses, if you will.
5: Choose Depth Of Validation
The most beautiful specialization hypothesis in the world is worthless if the market doesn’t care within a timeframe that matches yours. That’s why we seek validation for our ideas — our hypotheses — about how we might specialize our business.
There are 4 ways you can validate:
- Blind pivot
- Deep market research
- Live market test
Blind Pivot: A blind pivot is only considered validation based on a technicality. With a blind pivot, you choose the specialization hypothesis that seems best to you and go with it. You assess, create a shorterlist, choose the one that seems best to you, and implement. You “just do it”. Validation or invalidation of your hypothesis eventually happens, but it takes months or years, and risks business failure and opportunity cost.
A blind pivot is post-validation rather than pre-validation.
Guardrail-and-go: You choose from your head start or your heart and apply sensible guardrails (healthy market size, documented interest, etc.) to eliminate excessively risky options. After that, you choose the specialization option you like the most and implement. You can also simply copy a specialized competitor and implement. With the Guardrail-and-go approach, you are not validating directly with the market, you are looking at proxies for market demand (presence of competitors, etc.) and using the presence of those proxies as evidence of sufficient market demand.
The guardrail-and-go approach is quick-and-dirty pre-validation. You’ll notice I’ve already told you to apply some guardrails in the previous step of this decision making process. That’s because the ROI on this work is high enough that it’s worth doing no matter what. I don’t consider it an optional validation step; it’s just a natural part of the right way to make a specialization decision.
Deep market research: With this approach, you reach validation through market research interviews with buyers in the market you might focus on. Your research might actually generate the hypothesis, as is done in innovation-focused research, or it might validate/invalidate your specialization hypothesis. Research styles include Customer Development (Cindy Alvarez) & JTBD (Alan Klement).
The deep market research approach is time-intensive pre-validation. I rarely recommend this approach anymore except in cases where you’re pursuing an entrepreneurial thesis.
Live market test: With a live market test, you build a free gift of knowledge for the market, directly distribute it (1:1 emails or LinkedIn messages, posts on intimate forums or Slack/Discord channels), and ask for feedback on the gift. There are other ways you could run a live market test (run ads pointing to a landing page, etc.) but for indie consultants, directly distributing a free gift of knowledge and pointedly asking for feedback on it is the best approach.
For most indie consultants, the live market test is a good middle ground between the deep market research method, which has considerable time cost, and the guardrail-and-go method, which generates no actual evidence from the demand side of the market.
Again, the most beautiful specialization hypothesis in the world is worthless if the market doesn’t care within a timeframe that matches yours. The live market test delivers visceral evidence about whether the market cares about your potential way of specializing.
But! How much validation you invest in is up to you. It’s your decision. Some of you will have the risk profile and existing business momentum to do less validation. Others will want to extensively de-risk the decision by carrying out more validation. If you decide to de-risk by doing some validation before you implement your new specialization, I recommend the live market test.