Creating Market Dominance

Jack Welch, who died recently, was the CEO of General Electric for 20 years.  During his tenure, GE was one of the most respected companies in the world. One of his most famous beliefs was that GE should be the number one or the number two ranked provider in any sector where they competed – whether elevators, financing, broadcasting, or power generation.

During his tenure, revenues grew five-fold and net income grew ten-fold.  Though some of Welch’s management practices have been questioned, the focus on results, market dominance and expertise are worthy of discussion. If there’s one thing CAS practice leaders and partners should emulate, it’s that focus on market dominance.

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More than a Generalist

Many CAS practices start as generalists or omnivores (who will take on any client regardless of industry, fee tolerance, or complexity).  This omnivore approach could mean your client base includes an internet retailer, a law firm, an organic farm, a veterinary practice and a construction company.  Each of these types of business could have specialized needs (including inventory management, practice management, job costing and progress billing in addition to GL, A/P, A/R, and expense tracking).

While it is possible to build a successful practice as a CAS generalist, being a generalist comes with costs: lack of differentiation, lack of perceived value-add, commoditization of services.  By the way, these same issues are why many CPA firms want to become less reliant on compliance business. Remember that there are lots of FinTech firms that are nimbler and have lower overhead than traditional CPA firms.  Many of these firms are already competing effectively in the small business CAS space. If your only differentiator is a price, you will lose.

To Dominate the market, Dominate a Niché

Many of the market-leading CAS providers started out as single niche practices.  As a specialist in hardware store franchises, restaurant franchise groups, venture-backed start-ups, membership associations, or non-DOD government contractors, you’ll have the opportunity to focus on an industry vertical, a specific type of business, and focus on the challenges, KPIs, and opportunities of that sector.  Imagine trying to land a membership association CAS engagement when you have twenty similar reference accounts. Now imagine trying to land that same engagement when your reference accounts include internet retailer, a nonprofit human services agency and three HVAC contractors.

Becoming a Trusted Advisor

As you become (or if you’re already) an industry veteran, you’ll know the metrics that are most important to your industry sector.  Restaurants, for example, care about cash flow, cost of goods sold (COGS), prime cost (total COGS + total labor), revenue per available seat hour (RevPASH), and retention or repeat visitor rate.  If you focus on restaurant franchise groups versus fine dining, you’ll probably have other KPIs that appear on your client dashboards.

Providing management tools and management advice are keys to becoming a trusted advisor versus someone who completes for compliance work and simply provides financial statements on the 5th workday.  While we’ll drill down on this later, one of the key things you’ll want to evaluate when you selecting a specific industry niche is to understand whether there’s a large enough addressable market and whether that chosen sector will be able to and willing to pay your fees.  (This is another argument for being a specialist versus an omnivore – imagine the relative perceived value of your services as a family office or as the CAS provider for an anesthesiology practice.)

After declaring your niche and developing a profitable client base, you should consider adding an additional industry vertical.  You can do with organically or through acquiring another practice or a practice leader with deep experience and connections in the vertical you’d like to pursue.

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