Executive Summary
Starting a niche business can be very difficult. It’s hard to be a specialist for a particular type of clientele or need that they face from day 1; it takes time to learn the issues and the pain points, and acquire the knowledge and expertise. And even once you have the knowledge and expertise to provide the solutions, there’s still the simple challenge of actually finding clients to whom you can deliver those solutions! After all, it’s not enough to just know how to solve the problems of your target clientele; ultimately, people do business with people they know, like, and trust… which means even after getting the expertise, you still have to become known, liked, and trusted.
As a result, it takes time to build a niche business. In fact, having witnessed the process repeatedly, it appears that with remarkable consistency, the time it takes to become known, liked, and trusted is about 3 years. The bad news of this path is that it can feel painfully slow and even demotivating in the early years. Yet as reputation and trust builds, the end result is a business that builds not just linearly year by year, but expotentially as the years pass and the niche develops. Because while it takes time to become known, liked, and trusted within a niche, once you are the "go-to" person for your target clientele, the pace of incoming referrals can be tremendous!
Accordingly, perhaps the most important "tip" for building a successful niche practice is simply to recognize that it takes time to build one, and have a plan for how to navigate that slow building process (from supplementing income to preparing yourself mentally for the time it will take before the real business rewards may come). Similarly, it's crucial to measure "the right things" in the early years - business activity, not business results - because of the time it takes to build trust. Nonetheless, for those who stay focused in a niche, and refine and evolve it over time, the long-run potential remains a business where growth eventually gets much easier over time!
The 3-Year Niche-Building Phenomenon
Having witnessed the growth of many niche advisory businesses over the years, and having been involved in building several of my own niche businesses serving advisors (including this blog, my speaking business, The Kitces Report newsletter, New Planner Recruiting, and Pinnacle Advisor Solutions), I’ve observed a striking phenomenon – it takes about 3 years for the exponential growth of a niche to really start to take off, where the business shifts from outbound efforts to get clients to an inbound flow of referrals.
In fact, the chart below shows the growth in revenue of several of my businesses over time (business names/lines of business have been anonymized to respect the privacy of some of my business partners), and how it grows through the first three and into the fourth year.
For the most part, the pattern is strikingly consistent:
- The first year sets an initial baseline, which is fairly low. In the first year, it’s mostly about learning the clientele who will be served, perhaps getting a few “lucky” clients who are willing to be “guinea pigs” in your new business by working with you, and maybe getting a little revenue underway.
- The second year is often little more than a building extension on the first year. By now you understand the needs of your target clientele pretty well, but they still just barely know who you are and while they might like what you’re doing, and haven’t gotten to know you well enough to really trust you yet.
- The third year is usually when the business experiences a significant uptick, and starts to really feel viable. Suddenly, some business starts flowing. The first client or few (from year 1) start to refer. People you’ve gotten to know previously suddenly decide they’re ready to work with you (they finally trust you). A few people you've gotten to know in your niche start sending you referrals, even though they don’t do business with you, because you’re now becoming known as the “go-to” person in your niche.
- By the fourth year business is really booming. Suddenly most business is coming to you, and you’re not going out to market and find/meet new people, unless they’re people you strategically want to meet and connect with to expand your visibility in your niche (i.e., truly, you’re only meeting with real “centers of influence”). People you’ve worked with are referring you, people you know are referring you, and even people you don’t know are referring you because you’re known as the person in your niche. Business and revenue explode upwards.
In a linear (straight line) business building process, each year builds incrementally on the last. If your first year your revenue was 1X, in the second year it’s 2X, in the third it’s 3X, and in the fourth it’s 4X. However, in observing the growth of these niche businesses, it’s consistently not a 1-2-3-4 growth pattern over the first four years. Instead, it’s more like 1-2-5-10, where the growth really begins to ramp up to a viable point in the 3rd year and then “surprisingly” doubles again in the 4th year, now dwarfing the first year by a factor of 10:1!
It Takes Time To Be Known, Liked, And Trusted
As the saying goes, people do business with people they know, like, and trust. The challenge, however, is that it takes time to be known, liked, and trusted in the first place, especially as a financial advisor in our low-trust industry of financial services.
In fact, it might be said that if your revenue growth in your niche looks like this…
- Year 1 – Do business with anyone you can
- Year 2 – Repeat year 1, just keep grinding
- Year 3 – Still grinding, but now people from years 1 and 2 are referring you
- Year 4 – Shifting from grinding out business to fielding referrals as business starts to come in!
…then your trust-building process in your niche looks like this:
- Year 1: Become Known
- Year 2: Become Liked
- Year 3: Become Trusted
- Year 4: Business Referrals Coming In!
The key aspect of this dynamic – and perhaps one of the most significant challenges – is that it can take a long time to really establish yourself as the trustworthy go-to person in your niche. While ultimately rewarding when the referrals start to flow in, the building process to get there takes a long time. Indirectly, this is likely why many people end out forming niche businesses in an area to which they already have a connection and some relationships: because it means they’re already several steps down the trust-building road and may be able to reach the rapid business growth incoming-referrals stage a little more quickly.
In fact, as I reflect back on the charts shown earlier of my various businesses, the reality is that those niches in which the business already had some connections or presence grew more quickly; in fact, the business with the "slowest" growth multiplier grew more slowly in part because it had a better year 1 thanks to existing business relationships! By contrast, those businesses that were more new, original, or different – and therefore needed more time to establish trust and build relationships with the target clientele – grew more slowly.
Nonetheless, it’s also notable that having a presence in the niche was not a pre-requisite, as there’s really no such thing as a “natural” niche. It’s not as though we’re born categorized in a certain way that deems us only capable of working with certain niches or having a particular specialization! Any niche can potentially be built over time by establishing the connections necessary to build trusted relationships and establish one’s self as an expert for a particular target clientele – at best, having an existing potential niche just accelerates the growth process a bit by leveraging existing trusting relationships!
6 Tips For Managing The Trust-Building On-Ramp Into A Financial Advisor Niche
Given the challenging reality that building trust takes time, and that just forcing more frequent connections to people in your niche won’t necessarily accelerate the trust-building process (in fact, at worst it can be annoying be counterproductive!), a few key tips and suggestions for managing the slow building process in a niche:
1) Be prepared for the time it takes. If there’s one thing I’ve seen that causes the most niche-focused businesses to fail, it’s that they weren’t prepared for how long the trust-building process can really take. Being prepared to handle this means not only financial preparations (are you ready for how long it can take to build income to a viable level? Do you have the financial resources, and/or low enough fixed/living costs, and/or another source of income, to sustain during the building period?) but also mental preparations (are you ready for the frustration of spending years working to prove yourself in a niche before it becomes financially rewarding?). As noted earlier, this is a common reason why it’s so common for niche businesses to evolve out of existing (niche) relationships – because it cuts down on the ramp-up time; this also means that if you’re going to be shifting into a niche (or shifting into the financial planning industry from the start), start earlier rather than later in building your niche, because it takes time!
2) Measure The Right Things. Because results are slow in the early years, it can take a long time for “results” – in the form of revenue-paying clients – to show up. As a result, measuring the results of a niche-building effort by revenue and paying clients is problematic in the early years, and can even be highly misleading. Again, the key issue is that even if lots of potential clients are being reached, it takes time for them to know, like, and trust you enough to do business with you. As a result, a common path I see in many niche businesses is that the bulk of clientele that show up in years 3 and 4 were actually from activity that was done in year 1… it just took that long to get to the point of doing business! Given this reality, the key in the early years is to measure what you can control, which is your activity – whether that’s meetings, media appearances, speaking engagements, blog traffic, social media followers, etc. If your activity is leading to visibility and connections and relationships, and you’re telling the story of what you do in a way that’s relevant to your niche, then the business will follow. Eventually. It still takes time.
3) Recognize the benefits of inbound (content) marketing. In today’s digital age, the inbound marketing approach to building business as a financial advisor is perfect for targeting a niche. This is the approach where you produce content that’s valuable and relevant for your niche that allows people to find you (whether through Google search, by getting it read and shared by Centers of Influence in your niche, reaching the media, etc.), which can be especially helpful for establishing that you are a trustworthy expert.
4) STAY FOCUSED in your niche. The second failing I see most commonly for those who fail at trying to build within a niche is that they fail to keep focus within their niche. Often due to impatience over results, and a lack of preparedness for the time it takes (see #1, above!), far too many businesses succumb to the temptation to “diversify” their efforts… with the inevitable result that they lose momentum in building their niche by distracting their efforts elsewhere. Doing something else to supplement your income because you truly have spare time and capacity in your day is one thing; but as soon as your “diversification” efforts take away time and focus from your niche-building efforts, you’re progressing down a path of self-defeat.
5) Realize That Your Niche Will Evolve. Notwithstanding the prior comment about staying focused in your niche, recognize that as you find and establish yourself in a niche, it will evolve over time as well. This is just the natural evolution of having continued conversations with the target clientele you’re trying to work with; you will learn more and more over time about what their real issues are, what kind of expertise you need to solve it, ways that you can do business with them to provide those solutions, and then repeat the process. This isn’t about straying away from the focus of your niche, but about refining it.
6) Don’t Skimp On The Trust-Building Process. In a business built on trust with other human beings, the reality is that perceptions and first impressions matter. As a result, be cautious about skimping on “the little things” that may seem minor but can play a significant role in establishing trust. For instance, be cautious about not having a professional-looking website, business cards, and supporting marketing material that conveys what you do; while these may not be the things that will get you business right away, not having them may create the perception you’re not really a professional worthy of trust, and can significantly delay what is already a slow trust-building process!
Unfortunately, the slow build just seems to be the natural reality of establishing a niche, as it takes time to become known, liked, and trusted. The good news about the challenge of the slow-building niche, though, is that once established it can lead to some very strong, financially rewarding businesses, with growth that gets easier in the long run as becoming known within a focused niche is a great way to become more referrable. In fact, once progressing through the building phase, I routinely find that niche-focused businesses often have a far greater level of exponential growth in the later years, as new clients start finding their way to the business all by themselves! In the niche businesses in which I've been involved, it's often a surprise in the 3rd and 4th years (and beyond) how much business activity starts really flowing in - a stark contrast from how little is often coming in the first year or two, despite working just as hard in every year along the way!
Of course, the reality is that in today's marketplace, starting any new advisory firm is a slow-building phenomenon, especially as it becomes harder and harder for advisors to differentiate themselves. So the real question is not about whether to pursue a "slow" niche or some other "faster" alternative, but simply whether you're going to build towards a niche business that can eventually have exponential growth as referrals start coming in once you become known, liked, and trusted in your niche community, or whether you're building a business that will continue to be a struggle to grow year after year?
So what do you think? What have you found that works in building your niche? Did it take you 3 years for your business to really ramp up? What have you found that accelerates (or hinders) how quickly you can build trust in your niche?
I’m in year 2 of this process, so I can’t speak to the full spectrum. What I have witnessed is a transition from “just another advisor” to a viable source of advice. I’ve been invited to speak at events, generate proposals for retirement plans that we weren’t pursuing, and answer general planning questions for acquaintances and near strangers. If that’s any indication of things to come, the update in 12 months should include new business generated from these activities. Thanks for the encouraging post!
Jeremy,
Indeed, this is the process that I commonly see. What I find is that with the uptick in those activities in year 2, some momentum starts to build, but it’s still difficult to close people in the niche. They’ve heard of you, they know you, perhaps they like you, but the full trust isn’t there yet. As that momentum builds, by year 3 the interest and invitations pick up, and business starts to close faster/easier as well…
Good luck!
– Michael
Interesting post. We’re eight months into a niche fee-only money coaching service in Canada and can see how it can take 3 years+ for business to ramp up. I’m encouraged by the number of inquiries we get, but converting those inquiries into clients has been a challenge since the service is new and we don’t have very many clients to offer testimonials and pass along referrals.
We started by building a presence through blogging (since 2010) and social media before introducing the fee-only service. That helped gain clients initially who trusted us and understood our style when it came to money management. We continue to get leads through the blog, and honestly I’m not sure we could have done it any other way.
Michael, it’s like you live in my house and hear the conversations I have with my wife……
Being 14 months into building a niche practice, I have had all of these thoughts and it’s encouraging to know that business will pick up. I think a lot of the issues arise due to expectations. People get very disappointed when things don’t work out the way they expect (myself included) – but the pace could be the norm and the expectations were out of line.
Having written a book about the first year of running my RIA http://www.amazon.com/dp/B00L7311CK I think a lot of your points are spot on. Measuring business activity now versus results is key – as results may be minimal. (I hope you don’t mind my plug – pull it down if you do)
Also understanding that a blog will generate business years from now (if the content is good and niche-focused) is a key element to writing good material and not putting up generic garbage.
More than anything, the initial years will test patience as well as the ability to hustle. While a practice takes time to grow, there are many ways to generate extra income and it can be a necessity to do this at times.
This timeline would apply to a lot of industries *outside* of financial planning as well. I saw a similar(ish) chart with my software company…except yours doesn’t include a couple of unplanned downturns too! 🙂
Michael,
Nice job as always! We agree with your findings and have found the same. From transitioning to fee-based practices years ago to now sharing our systems and processes with other advisors. It takes a solid three years to build up a sustainable flow.
My father used the story of the old wells that had hand pumps on them to draw the water up from the well. You could sit there and pump away like crazy and nothing would happen, not even a drop. If you kept at it though, if you kept priming that old wells pump, you’d get the water to flow and eventually you wouldn’t have to work so hard to keep that water flowing. His caution was to always remember that if you stop pumping altogether then the water will stop and you’ll have to prime that pump all over again.
I think it’s a wonderful analogy. It also reminds me of the advisor that gets frustrated with one niche after year two, jumps to another niche for two years and then a third because he or she never quite finished “priming the pump”. We unfortunately have gotten quite used to the microwave and delayed gratification is often times forgotten.
If it’s okay with you…I’d like to share your post with our advisors.
Best,
Michael Palumbos
co-founder http://www.7figureadvisor.com
Hi Michael, good post as always.
My good friend Daniel Priestley runs an awesome programme called “Become a key person of influence”. The programme coaches entrepreneurs on creating niche businesses. Having done it myself, it has massively helped me set up a new business in a foreign country, where I knew nobody, and I even include some of Dan’s coaching techniques in my coaching and consulting work. The KPI programme exists in the US now, as well as UK and Australia. Dan’s not here in South Africa yet, but I’m working on him!
As a start, your readers could do worse than read Dan’s excellent book “Become a key person of influence”. Better still, get yourself on the programme. There is a formula for becoming a “go to” business and Dan would argue that his accelerator programme could speed up that process.
As for me, I’ve already established awesome connections and built strategic partnerships with some great centres of influence, and I’m working hard to build the credibility. Writing, speaking, just about to employ a new web developer etc.
Key starting points are, I think, to start with “why” – read Simon Sinek, and then build a brilliant pitch that articulates your why (KPI). When a great pitch lands well, it moves the person in your niche and that kicks off the process.
Michael, great post – and I can tell you that I have shared this as it absolutely nails the point! As has been said elsewhere, this does not just apply to financial services – I work with many non financial clients and the challenges are exactly the same.
I had the same experience building my own online business – and I would say that the biggest challenge I faced was drifting out of my niche! It wasn’t a decision – it was a slow drift! That drift came about because of my anxiety of the lack of speed of growth in my revenue. However, once I realized that I was drifting, I pulled back and got my focus right again.
Momentum is a wonderful element in this – when you stick to your niche and do the right things to build that business, and you do them consistently, you will get the results.
Thanks again, Michael.
Great insight. Our business is right on 3 1/2 years and we’re now getting “blue birds” flying thru the window whereas before, it was the struggle to get just one more client out of all the connections. Ours is a nich consulting firm in the energy space and trust is the truly the one thing that attracts clients like a magnet and is the one thing that can sink a ship like this overnight. This article was very affirming of all the trials and effort it took to get here. Thank you for this and I’ll attest that after year 3, the phone rings instead of me calling everyone I know. Hang in there all you less than 3 year businesses!
Eric Whitley
Grid Subject Matter Experts
http://www.gridsme.com
The hardest part for me in this time period of growth is just handling the erratic growth patterns and moving from one individual firm to a firm with a team behind it before the revenue to support a team is firmly there.
Surely enough, closing in on end of year 2, referrals are already becoming 10-20% of new biz revenue. Amazing how accurate this article is and definitely
one of the best posts I have ever read.