Quite possibly for the first time in history, the available supply of professional service providers exceeds the demand for their services. This is a rather lofty statement. After all, for well over a decade in the Western world we’ve decreed it “a services economy.” We’ve pushed our youth to attain college and professional degrees, often burdening themselves with massive debt — sometimes in excess of $100,000 — in search of a better future. And, as it turns out, we delivered. The service economy is here, and now in many areas of professional services we have more service providers than we need.
An Oversupply of Talent
While all recessions affect the majority of segments in the economy, generally the impact on the professional services industry has been modest at best. Not so in the great recession. In June 2011, The New York Times reported that the number of new lawyers passing the bar exceeded the number of estimated jobs available by over 25,000 people. In New York City in 2009 alone, the number of new attorneys passing the bar was over four times the number of estimated job openings for the next 5 years. While other professional services, like engineering consulting, are faring better, most all have seen downward pressure on fees and margins.
The Problem with Stretching Your Skills
Unfortunately, based on conversations I’ve had with industry professionals, it seems a lot of firms are responding by stretching into new markets and service offerings. In fact, the Marketing Director of a 150 person structural engineering firm informed me a few weeks back that he sees fewer specialized firms competing for business today than he did before the recession. While responding to changing client needs with new products and services can often be a good thing, stretching the firm’s capabilities beyond its proven area of expertise without considering the strategic implications is not. Stretching the firm’s resources into unchartered markets and services only serves to heighten fee pressure — without proven expertise, the firm is left with little else to compete on other than price. This is, of course, a downward spiral. Cutting fees only serves to reduce profits and weaken the firm’s ability to build the expertise necessary to compete within the desired new space. Whenever possible, the best response to fewer opportunities is to establish a more narrow focus to maintain expert positioning, drive demand from broader geographic markets and protect fees.
Clients Clamor for Expert Guidance
Regardless of the industry, regardless of the service, specialists tend to be growing, thriving or demanding higher fees for their services.
One of our engineering firm clients recently told me of an engineering consultant they occasionally hire out of Australia with a specialized skill that renders him “one of two people in the world” with the expertise to perform the task at hand. The consultant charges a flat fee for the engagement and essentially has positioned himself as indispensable to the client.
In the depths of the recession, I shared a coffee with a seasoned, executive-level, sales manager. A proven performer with “big name” B2B sales experience, and he’d been out of work for over 6 months. I found this quite odd. After all, great sales people are in demand in any market. So, I pushed a little bit. Turns out, he’d been in consideration for multiple jobs. But, in the end, he’d lose the job to someone with the most direct experience within the company’s industry vertical. There were a lot of executive-level, proven sales managers on the block – in the absence of better insight, the hiring manager picked the folks with the most industry experience on hand.
About six months ago, one of our technology clients was seeking out a new CPA relationship and he asked me for some suggestions. I recommended a few local firms we’ve known, worked with, or respected for years. After a little due diligence, the client partnered with a CPA firm out of Michigan that specialized in working with software companies and technology start-ups. In the end, the proven expertise of the lesser known specialist trumped the referral of a trusted advisor.
Now is the Time to Focus and Position Your Firm
As recently as five years ago, an engineering degree and a license to practice sufficed as the basis for a successful, profitable engineering firm. The principal of a 50-person, multi-market structural engineering firm told me a few weeks ago that many structural engineering firms didn’t even have a business development function as recently as 2008. The great recession not only wiped those days away, they’re not likely coming back. Economists from the Institute for Trend Research forecast a mild recession in the second half of 2013. Focused professional service firms will be poised to capitalize on this opportunity by laying the groundwork for a specialist, expert-based positioning now. Those who fail to move in the next twelve months are likely to experience more aggressive fee pressure, less relevancy with their clients, and a greater likelihood of contraction or, worse yet, business failure.
Rampell, Catherine. The New York Times. Economix Blog. “The Lawyer Surplus. State by State.” June 27, 2011.