Should we niche down further or broaden our focus?

Why specialists earn more

The yield chapter of the 2020 book says that once utilization is high, a boutique cannot scale by working harder; it has to become more valuable to clients. Clients turn to boutiques for specialization, have moved away from generalists and are willing to pay more for specialists. It names five forms of specialization that drive up yield: industry, function, segment, problem and geography. Its example is a firm that helps product managers at enterprise software companies in Silicon Valley move to the cloud, which clients would see as highly specialized and which could therefore charge more. Its screening question asks whether you are distinguished from generalists by three to five forms of specialization, and it concludes that hyperspecialization has the highest probability of success.

The marketing essay in the newer book says the same thing in its own terms: boutiques are niche specialists, and their advantage is not size but insight.

Why a niche can be too small

The market chapter of the 2020 book gives the counterweight. It says the size of the prize needs to be worth the effort, that it takes as much effort to pursue a small market as a big one, and that pursuing tiny niche markets is a recipe for frustration. It sizes a market as the number of possible clients times the typical engagement, then asks what share you can realistically win. Its screening questions ask whether there are thousands of targets, whether they are reachable, whether they will consider you, whether you can win your fair share consistently, and whether the market is large enough to support the firm at modest penetration.

The author adds a lesson from SBI: count only the targets you can actually reach. His firm first sized its market as every business-to-business sales leader in the world, then realized many were unreachable behind layers of gatekeepers, and built its market instead from about 250,000 early adopters who self-identified by subscribing to its content. Big markets that are unreachable, he says, are not attractive.

Run both tests

As an inference, the two chapters are not in conflict. They are two tests the same focus has to pass. The specialization test asks whether clients see you as the specialist, shown in your fees, your win rate against generalists and how often you are referred for one kind of problem. The size test asks whether the reachable market, at a share you can realistically win, supports the revenue you want. The market position chapter notes that boutiques penetrate their target markets less than 10 percent, so a 50 million dollar firm implies a market of 500 million dollars or more.

The chapter makes the arithmetic simple. Ten thousand possible clients at a 10,000 dollar typical engagement is a 100 million dollar market, so 1 percent penetration is 1 million dollars of revenue and 10 percent is 10 million. It says most client markets have thousands of possible clients, so the levers that matter are penetration and engagement size rather than adding targets. As an inference, run that calculation for your current focus and for the narrower one you are considering, counting only clients you can actually reach.

A focus that passes both is right. One that passes the size test but not the specialization test is too broad. One that passes the specialization test but not the size test is too narrow.

If you are too broad, narrow along one dimension at a time

The marketing essay says the strategic work of an ideal client strategy is defining the segments that actually matter and the signals that separate a perfect-fit buyer from everyone else. The service design essay calls for an ideal client profile precise enough to win consistently. As an inference, look at your best engagements, the ones with the highest margin, the clearest client return and the most repeat work, and ask which of the five dimensions they share. Narrow on that one first. The dropping service lines answer on this site covers retiring the offers that do not fit.

If you are too narrow, widen without losing the specialty

As an inference, widen along one dimension while keeping the others fixed: the same problem for an adjacent industry, the same industry for an adjacent function, or the same work in a new geography. Each keeps the reason clients choose you while enlarging the pool. The new service line answer on this site covers taking the wider offer to market.

Specialization looks different in the AI era

The lead generation essay says segmentation in earlier eras stopped at a single ideal client profile, one message for one archetype, because that was all people and legacy systems could manage. It says AI now allows hyper segmentation: finding sub-segments within the ideal client profile, scoring prospects on fit and intent, and revealing segments a firm did not know existed. As an inference, that weakens the old trade-off. A firm can keep a market large enough to sustain it while speaking to each sub-segment as a specialist would, provided the underlying expertise is real.

Watch what buyers will see

The market position chapter says acquirers look at fee level, client return on investment, call point and cycle resiliency. The continuous improvement chapter adds that acquirers avoid boutiques relying on aging methods, with the example of a firm specializing in Six Sigma, which was hot in the 1990s and much less so later, and the financial market trends chapter says niches get hot and go cold for investors. As an inference, a specialty tied to a durable client problem holds value better than one tied to a passing method or tool.

What we do not prescribe

Collective 54 publishes no minimum market size, number of specializations or method for choosing a niche. The published positions are clients paying more for specialists, the five forms of specialization and hyperspecialization as the highest probability of success, tiny niche markets as a recipe for frustration, the size of the prize and the market sizing method, reachability as part of market size, boutique penetration below 10 percent, boutiques as niche specialists whose advantage is insight, an ideal client profile precise enough to win consistently, hyper segmentation in the AI era, and niches that go cold.

When this answer flips

If you are early and still learning which clients value you most, as an inference, a slightly broader focus can be a deliberate way to find out, as long as you narrow once the pattern is clear.

If one client or one industry is most of your revenue, a narrow niche is also a concentration risk, and widening may protect the firm.

And if your specialty is tied to a method or technology rather than a client problem, plan for the day demand moves on.

The short answer

Usually niche down, but test the size first. The 2020 book says clients pay more for specialists, names five forms of specialization and says hyperspecialization has the best odds, and it also says tiny niches are a recipe for frustration because a small market takes as much effort as a big one. Your focus has to pass both tests: clients see you as the specialist, and the reachable market at a modest share supports the firm you want. If you are too broad, narrow on the dimension your best work shares. If you are too narrow, widen along one dimension and keep the others. AI segmentation now lets a firm stay specialized within a larger market.