You Cannot Be A Specialist In Everything

I am amazed at financial advisers who list twenty or more specialties on their websites, letterhead and even on their business card. I suppose they think breadth is important. It might be, but it is very difficult to keep up to one field, never mind twenty.

It is very costly to compete on a wide front. A few years ago, I read a book that has made me think about niches. It is The Rule of Three. It speculates that there will be no more than three companies that together control 70% of the market in their industry. According to them, without at least 20% of the market, it is impossible to have the scale needed to be both successful and big.

Examples

  • McDonald’s, Burger King, and Wendy’s
  • General Mills, Kellogg, and Post
  • Nike, Adidas, and Reebok

A similar message is found in The Long Tail. Only a few dominant any market. Your success is in dealing with the rest successfully.  Porsche margins per vehicle are much higher than VW or GM. If you are successful in a niche, you do not have to compete on price. You can compete on value, service, expertise and quality.

I have noticed that the advisers who are most successful today tend to have a narrow area of expertise and a wide area of awareness. Time to keep up is the scarce resource. They have decided to focus rather than disperse their time and energy.

Perhaps that is a reasonable response to banks entering financial services beyond banking.

Niche marketing is a worthy path. It is very effective if you connect with other specialists from different fields so that a client may achieve a wide experience by dealing with several people who have in-depth knowledge.

Early in the 1970’s I heard of Max Palevsky. He is my model for finding a niche and exploiting it. Max died recently after a successful life.

Max was a philosopher, in particular logic. In the early 1950’s that skill alone give you a head start in the computer business. From Northrop to Bendix to Packard Bell he went. At Packard Bell as vice president, he helped develop the first silicon computer. A nice career.

But it all changed in 1961. Max came to the conclusion that at least 10% of the market could be served by special purpose, inexpensive computers, rather than general purpose, expensive ones. Max envisioned computers that would calculate trajectories, do medical or other scientific work or design beams, but they would not do the payroll and the inventory too.

His machines would cost tens of thousands instead of millions.

With $60,000 of his own money and another $1,000,000 or so of help from venture capitalist Arthur Rock, Max started Scientific Data Systems. (SDS)

Over the next 5 years, SDS flourished and owned about 2% of the market by 1966.

There is value in small and specialized. In 1969, Max sold his SDS stock to Xerox for $92,000,000. A nice sum in 1969.

Max devoted the rest of his life to philanthropy, collecting art, a little political activity and some venture capital investments. Max was one of the VC investors in Integrated Electronics Corporation. You may know it better as Intel. That worked out well too.

He rescued Rolling Stone magazine and became its chairman. Later adventures included movie production. (Fun with Dick and Jane and Islands in the Stream.) His corporate stewardship and philanthropic efforts after 1970 were numerous.

In 1985 Palevsky was named to the Forbes 400 list of wealthiest Americans.

It all started from recognizing a niche.  The message:

You don’t need to be big. You don’t need to be operating in every market. You don’t need to be good at everything. You do need to be very good at one thing, and you need to use that edge repeatedly.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

2 Comments on “You Cannot Be A Specialist In Everything

  1. “To understand one thing well is better than understanding many things by halves.” – Goethe

  2. Good Point Brian. Thanks. I still think Goethe would agree that knowing one thing well does not preclude knowing a little about many other things. Perspective is important too.

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