Firm Growth: A Primer for Professional Services
If your firm is like most, growth is an on-again, off-again proposition. It comes and it goes. It’s not always clear what contributes to those pleasant bursts, and it’s even less certain how to trigger firm growth in the future.
But there is a cohort of professional services firms that don’t blow with the winds. Instead, they seem able to propel their firms at high velocity, year after year. Some are market leaders, while others are promising up-and-comers. They appear to have something special that the rest of their industry lacks. But what?
At Hinge, we’ve been studying firm growth for many years, and we’ve learned a lot. In the intervening years, we’ve become a high-growth firm ourselves. In this primer, I describe some of our key findings about growth and this elite group of firms. Most importantly, I will explain what any firm — even yours — can do to emulate these high performers and generate revenues and profits well above average.
Now, it takes considerable resolve to overcome inertia and bring a massive ship up to cruising speed. But if you make the necessary shifts in attitude and direction, you can implement a marketing program that is able to generate consistent growth for many years to come.
What Do We Mean by Firm Growth?
Firm growth describes the way a business develops and expands over a period of time. This growth can be expressed in a variety of ways, each of which tells a different part of the growth story.
The most common measure of firm growth is annual gross revenues (also called total sales). The year-over-year change in this metric indicates whether your overall business profile is expanding, shrinking or staying the same. Just because revenues are growing, however, doesn’t necessarily mean a firm is financially healthy — many startups, for instance, grow revenues quickly but operate at a loss for years. Nevertheless, strong revenue growth is a strong indicator that a business is becoming more visible and reaching new markets. Gross revenues can be measured in dollars or as a percentage increase/decrease.
Net income growth deducts expenses from gross revenues to focus on a firm’s profitability over time. Profitability (especially when described as a percentage) is a good indicator of a firm’s health. On the other hand, it says little about its ambitions or long-term prospects. Just because a firm generates strong profits does not mean it’s likely to become a market leader. Many highly profitable firms remain small forever. Like gross revenues, net income can be quantified in dollars or as a percentage.
Market share is another way to express a firm’s growth, though it is rarely used in the professional services. That’s because in most professional industries even the largest firms only control a small fraction of the total market (compare this, for instance, to the soft drink market, which is dominated by two titans). On the other hand, market share may be more meaningful when the market is constrained to the enterprise or large public markets, where there may be only a handful of major players. For instance, the Big 4 accounting firms handle 98% of the audits for large public companies.
Other common measures of growth include number of employees, offices and cities or countries served.
For a firm to exhibit sustained growth it must demonstrate consistent growth over multiple consecutive years. And to be considered a high-growth firm, that consecutive growth rate must meet or exceed a defined threshold of growth. At Hinge, we consider firms that demonstrate a 20% year-over-year growth rate over three consecutive years be high-growth firms. By comparison, average firms grow less than 3% per year.
[bctt tweet=”Average firms grow less than 3% per year. ” username=”HingeMarketing”]
How Growth Affects Firm Value
Growth rate is a major contributor to a firm’s market value. In a survey of valuation experts, projected growth rate was identified as the single most important financial metric for a premium valuation. Historic growth rates were an important factor, as well (see Figure 1 below).
While historic growth rates are easy to prove (just share your financial history with a prospective buyer or investor), projecting future growth is as much art as science — and it involves building a strong case to support your forecast. Developing a consistent track record of growth, however, is almost always going to make your future projections more believable. In fact, valuation experts say it is the single most important thing you can do to improve your firm’s value.
Benefits of Firm Growth
Firms that learn how to grow on a consistent basis often experience a range of salutary side effects. These benefits aren’t accidental, of course. Rather, they are natural outcomes of growth. Here are some of the most common upsides to firm growth:
Brand awareness sets the stage for trust — Growth breeds familiarity. And the more people recognize a firm’s name and are able to recall it without assistance, the more easily the firm can generate trust.
Greater exposure generates more opportunities — As firms grow and become more visible, their ability to develop quality leads usually increases, as well.
It’s easier to close new business — Firms that are well known and trusted are able to close prospects much faster than average. In fact, in some cases those prospects won’t even consider another firm.
You can charge more — Growth firms are often able to command higher fees. Because they tend to develop an excellent reputation in the marketplace, clients are willing to pay a premium for their expertise.
Recruiting top talent is easier — Both top college graduates and experienced professionals are drawn to firms that are growing and have a strong reputation. Many candidates will put these firms at the top of their lists of places they would most like to work.
Building partnerships is simpler — Fast-growing firms are able to develop business partnerships more easily. From establishing strategic marketing relationships to attracting the best subcontractors, growth can be a deciding factor.
Why Some Firms Grow While Others Struggle
Why do some firms experience strong growth year after year, while others grow slowly, if at all? At Hinge, we’ve spent a decade trying to answer this question, and we’ve developed a pretty good understanding of what high-growth firms do differently from their average-growth peers.
Let’s begin by considering average firms. These businesses have a few things working against them from the start.
- Average firms tend to be run by practitioners — that is, their leaders were trained to deliver a technical service. As a result, they have little business training other than compulsory schooling at the University of Hard Knocks.
- They look to competitors for marketing guidance. This is a completely understandable proclivity. After all, at least one of your competitors must be doing something right. Unfortunately, when this tendency is compounded with #1, the results are predictable: bland, look-alike firms that move with the agility of a slug.
- They shy away from risk. As a species, professional services firms tend to be conservative with their money. They often invest their marketing budgets in “tried-and-true” techniques such as face-to-face networking, tradeshows and sponsorships. Little do they know that their “safe” approach to marketing is limiting their opportunities.
- They are focused on client service. At businesses run by practitioners, delivery and client service are top priority. Without a doubt, these activities are crucial to a firm’s success — but so is generating new business, which often gets short shrift when the team is busy with client work. This leads to a self-perpetuating feast-or-famine existence, a real growth killer.
- They offer the same set of services to the same clients. In a given industry, the majority of professional services firm don’t substantively differ from each other, and in a given market they tend to compete for the same set of clients. When you consider this situation from the buyer’s perspective, you can see the problem it creates: how does a buyer choose from an undifferentiated array of firms that look and sound alike?
Next, let’s look at high-growth firms. Notice how they approach their markets very differently and how their priorities contrast with average-growth firms.
- High-growth firms make their expertise visible. In this content-hungry age, success goes to the firms that take that thing they have in spades — expertise — and use it to build visibility and trust in the marketplace. These firms view expertise not as a trade secret but as something to be shared freely and widely.
- They invest in content marketing. The most efficient way to share expertise is through a well-conceived content marketing program. High-growth firms encourage their individual experts to blog, write books, conduct webinars and speak at events. Educating prospects and earning their trust is the new referral. It’s no longer who you know, it’s what you know, that matters most.
- They strive to understand their target clients. How? They conduct regular research on their audience. In fact, firms that do this kind of research at least quarterly can grow up to 15x faster than firms that do no client research. Research helps firms keep up with their market’s changing needs and adapt more quickly.
[bctt tweet=”Firms that do research at least quarterly can grow up to 15x faster than firms that don’t. ” username=”HingeMarketing”]
- They obsess about standing out. High-growth firms are far more likely to have a strong differentiator than their low-growth peers. Often, that means they specialize — in an industry or a service offering, for instance. Where average firms see risk in a narrow focus, high-growth firms see opportunities to differentiate themselves, build depth in a niche and command higher specialists fees.
- They make marketing a priority. Without marketing, a firm has no reason to exist. High-growth firms understand that attracting clients is the most urgent function of their business, and they take marketing very seriously. That doesn’t necessarily mean they invest more money than their average counterparts (though some do), but they use their dollars far more efficiently. To these high performers, marketing is an essential strategy, not a luxury.
- They measure their results and adjust their marketing. These firms take marketing performance seriously, and they track a variety of marketing metrics. But it’s what they do with the information that makes all the difference — they test different approaches and make course adjustments all year long. Over time, these incremental improvements add up to a giant competitive advantage.
- They market to prospective hires. High-growth firms understand that they are only as good as their people. So they go out of their way to attract and retain top talent. That means building a brand that appeals as much to their staff as their clients.
How You Can Turn Your Firm into a High Performer
If your firm is stuck in the doldrums of low growth and low profitability, you can do something about it. We’ve seen many firms make the transition from low to high performance. But it takes more than hot breath and high hopes to fill your sails with wind. It takes a strong commitment to change from everyone at that top of your organization — and an understanding that change may be difficult at first.
You’ll need to bring your leadership team together and resolve to modernize your marketing program. Discuss what implications this will have on your firm. For instance, it will mean spending marketing dollars in entirely new areas and, most likely, abandoning some techniques that you currently use. It will mean focusing more on creating and promoting content than publicizing your capabilities. It will mean shifting priorities from traditional referrals to educating your prospects and building trust.
The good news is that once you’ve made the transition from a traditional marketing mindset to a modern one, things get much easier. Everything starts to make sense, and the ship quickly picks up speed — leads, revenues and profits are growing again. It’s a thrilling experience!
Before that can happen, however, you will have to retool your approach to marketing. This will mean tapping new skills, investing in new technologies and upgrading old ones. Here are the top 10 marketing techniques as rated by high-growth firms and how they compare to their no-growth counterparts:
Source: 2017 High Growth Study, Hinge Research Institute.
The first thing to note is that not one of these techniques is rated highly by no-growth firms. Clearly, they are relying on a largely different set of techniques than high-growth firms. While those results aren’t shown here, this includes traditional tactics such as sponsorships, print advertising and asking for referrals.
Below are seven key areas you will need to consider as you begin your journey to greater growth and profitability.
- Prepare for online marketing: For most firms, the biggest adjustment is revving up and tuning an online marketing machine. Most firms don’t use online tools very effectively, and the vast majority aren’t equipped to tie these tools to financial results. Those things have to change.Aim for a roughly even mix of online and offline marketing techniques. Our research found that firms that invest in both grow up to 4X faster and up to 60% more profitable than those that skew too far one way or the other.
- Determine what’s working now: Some firms have greater success with traditional marketing techniques than other. If you’re able to secure new clients by exhibiting at tradeshows, then go ahead and include it in your mix. If you can’t tie a technique directly to new business, throw it out. Because most traditional techniques aren’t measurable, figuring out what works and what doesn’t can be a tough assignment.
- Do your research: To truly understand how your firm fits into the marketplace, you need to do some foundational research. Upon these insights, you can build a powerful positioning for your firm. And if you can subsequently survey your clients on a regular basis, so much the better. In fact, high-growth firms are twice as likely to conduct ongoing research than no-growth firms.
- Differentiate your business: If you aren’t specialized already, think about how you might narrow your firm’s focus. High-growth firms are 22% more likely to be specialized. Specializing and positioning your firm against others in your industry can be scary at first. But it is liberating, too. For the first time, you will be able to describe your firm in language that means something to your prospects — language that is memorable and sets you apart. If specializing is impossible, you can take a different tack. Look for a feature or trait of your business that would resonate with your clients, then resolve to own it. Don’t worry if it isn’t unique in your industry so long as nobody else has beaten you to it.For example, we are working with a technology and business consulting company that, like many of its competitors, provides a wide range of services to clients in many industries. Rather than specialize in a service area or industry, they built their positioning around their ultimate objective: helping clients turn their business processes, technology and analytics into a tangible competitive advantage. Today, they no longer talk about themselves as a technology or business consulting firm. Instead, they are the go-to firm when you need to develop a powerful competitive advantage.
[bctt tweet=”High-growth firms are 22% more likely to be specialized” username=”HingeMarketing”]
- Nurture strategic partnerships: The top technique in the 2017 High Growth Study, partnership marketing is a natural for professional services. Start looking for firms, associations and other organizations that fit these criteria:
- Serves your target audience. Even if only a portion of a potential partner’s audience overlaps yours, they can still be a valuable asset.
- Doesn’t directly compete with you. In most cases, you don’t want to hook up with a competitor (exception: government contracting, where competitors routinely join forces). Instead, look for complementary services. For instance, accounting firms and law firms don’t compete, but they offer services that each other’s clients need. Pure architecture, engineering and construction firms serve similar clients without directly competing (of course, firms, for example, that offer architecture and engineering services might not fit this model).
- Both sides can benefit from the relationship. Can you cross-market your services, pass referrals to each other or market to each other’s lists? You’ll want to structure your relationship so that the benefits are more or less equal, which can be a challenge if one organization is much larger or has broader exposure than the other.
- Build a High-Performance Website: Your website is too valuable to be a passive piece of marketing collateral. The web offers way too much potential for that. Instead, it should be a lead-generating, trust-building content platform — and the centerpiece of your marketing program. It’s where you will house free educational content and your blog. It’s the mechanism that will attract many, many new interested prospects, and it’s where you convert them into leads. It’s also the place where you will promote your Visible Experts®, those professionals in your organization that want to raise their industry profile and increase the perceived value of your firm.To learn more about how to transform your website into your most important marketing asset, be sure to download our free Lead Generating Website Guide.
- Measure everything and adjust: High-growth firms monitor 33% more metrics than no-growth firms. Most online marketing tools come with robust analytics, so think about which metrics will be most helpful to you. It’s easy to become overwhelmed by the available data, so you will want to build a dashboard that covers the essentials. Most firms monitor metrics on a weekly, monthly and quarterly basis.To the extent you can, keep an eye on the performance of your offline tactics, too. How many speaking engagements are your team conducting, and want kinds of people are they getting in front of? How many phone inquiries are you receiving, and where did the prospects learn about you? How many proposals are going out each week, and what is your closing percentage? This only scratches the surface, of course.But don’t get so absorbed in the data that you forget to put it to use. Marketing is one giant laboratory, so don’t be afraid to experiment. If a particular tactics appears to be underperforming, try changing it, or abandon it altogether.
The mechanics of firm growth should not intimidate you. Building a marketing program that produces healthy, sustained growth may take some time, but it is a realistic, achievable goal for most low-performing firms. We’ve helped many of our clients do it, and there is no reason you, can’t, too. The key is understanding what high-growth firms do differently. And this primer should give you a solid foundation to build upon.
To learn more, check out the free resources below. I can’t wait to hear your growth stories!
- To get more detail about turning your firm into a high-visibility, high-growth business, download our free executive guide, The Visible Firm®, in which we layout an in-depth roadmap of this research-based program.
- Keep pace with the marketplace, generate leads and build your reputation all at once: Marketing Planning Guide.
- Need to train your marketing team in cutting-edge growth strategies and marketing techniques? Want to implement Hinge’s Visible Firm® program yourself? Then check out Hinge University. These are the same resources Hinge uses to train our professionals!
How Hinge Can Help:
Hinge’s Visible Firm® Program is the leading marketing program for delivering greater visibility, growth, and profits. This customized program will identify the most practical offline and online marketing tools your firm will need to gain new clients and reach new heights.
- A 10 Step Brand Development Strategy for Your Professional Services Firm
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- Rebranding Strategies: A Step-By-Step Approach for Professional Services
- Elements of a Successful Brand 1: Brand Positioning
- The Top 5 Business Challenges for Accounting & Financial Services Firms
- Find Your Differentiator: 21 Ways to Gain a Competitive Advantage for Your Firm