As business people, we’ve had it drilled into us that we need to strive to be the best. Our firm must outshine all others. Even if we do the same things as other businesses in our space, we must differentiate ourselves by our sheer operational superiority.
Pervasive as this philosophy is, it’s totally flawed. As financial professionals my advice is this: be unique in what your advisory business does, not the best. In other words, serve chief executives, families, physicians or celebrities and carve out a unique niche instead of building your reputation on access to the best products or performance.
To support my thesis, let me quote competitive strategist Michael Porter of the Harvard Business School:
“For your business to thrive, you shouldn’t compete to be the best.
Rather, you should compete to be unique.”
Porter cites the case of the furniture company, IKEA, which he says he dislikes intensely. However, Porter has a daughter who as a student in Washington, DC loved IKEA. Whenever Porter visited her, she asked him to rent an SUV so they could shop at IKEA and furnish her apartment.
Porter’s point: IKEA didn’t care that he hated shopping at its stores; he wasn’t their target audience. Rather, IKEAs philosophy was to create a unique selling proposition that was intensely attractive to his daughter and throngs of people like her. Quite simply, IKEA excelled at being unique.
The Problems With Being a Generalist
According to the RIA Benchmarking Study from Charles Schwab, 61% of advisors do not segment their client base. Instead, they are generalists who live by a “one-to-many” philosophy.
Here’s the problem with that generalist approach:
- You’re missing the opportunity to develop specialized expertise and operational efficiencies that come from serving a particular niche.
- You can’t charge a premium price for “typical” services, or build a reputation that’s as strong as you’d like it to be.
- You can’t generate a high volume of referrals.
What to do? Narrowly define who you work with, and achieve a competitive advantage within that group.