Many professional service firms compete in mature industries. This overview of the mature industry environment, its challenges, and strategies for success can provide a starting point for founders to find their way.
It’s important for founders of professional service firms to understand the characteristics of a mature industry. A mature industry is defined as an industry that has passed the growth phase of the industry formation. Firms in mature industries tend to be older, larger, stable, and slow-growing. For example, the consulting industry began in 1925 when James O’Mckinsey launched Mckinsey & Co. Today, 98 years later, there are 717,019 consulting firms in the United States. It is mature.
Many, if not most, of the professional services industry categories are mature. For instance, there are approximately 350,000 legal firms, 185,000 accounting firms, 264,000 architecture firms, and 232,000 software development firms. The competitive strategy required to be successful in a mature industry is very different from a strategy used in a growth industry. Understanding the challenges of competing in a mature industry can help service firms learn how to thrive in a mature industry and follow the best strategy.
There are six key challenges present when competing in a mature industry:
Fewer opportunities mean a lot of firms competing for scarce budget dollars.
A replacement buyer is a decision-maker looking to replace an existing provider with a new provider. This type of executive knows how to buy the service and is a capable negotiator.
There are many providers capable of providing a similar service. Therefore, to win, a firm must compete on service and price.
This creates downward pressure on fees.
These are some, but not all, of the challenges present. Recognizing these challenge of a mature industry can help you better compete.
There are several things to watch out for when competing in a mature industry. Realizing you are in one is key to understanding how to thrive in a mature industry. Many boutique founders do not know they are operating in a mature industry and try to win using strategies more appropriate for growth industries, only to fail and not know why.
At times, an industry starts to mature, and a founder of a boutique does not recognize the change. As a result, they start to struggle because they are clinging to the old ways of doing things. New providers enter the market with similar services at much lower prices, and clients flock to them. It is essential that a founder sees the transition from a growth industry to a mature industry when it happens.
Sometimes, a founder of a boutique tries to innovate inside a mature industry. This results in them launching new services, only to be disappointed when clients don’t buy them. Clients in a mature industry are not looking for innovation. They want cheap, reliable, steady service. Founders should re-design the current service to be more efficient rather than attempt to launch something brand new.
It is not uncommon to hear a founder complain that the competitors are “irrational” and are “buying” the business. When in actuality, the competition is earning an acceptable margin at the lower price point because they re-engineered how the service is delivered, often using technology instead of labor. Leaders of boutiques need to deal with the way things are, not the way they wish things were.
And lastly, founders try to move up market in a mature industry, claiming to have higher quality. Unfortunately, clients are often not willing to pay for higher quality in a mature industry. Founders need to resist the urge to focus on quality in a mature industry. Good enough is good enough.
Here are five recommendations on how to compete successfully in a mature industry.
Sunset unprofitable service lines and concentrate the firm’s resources on the services that are in demand and where the firm can win.
Experienced buyers know what the going rate is for a service. Pricing transparency in a mature industry is high. Price competitively to win.
Reduce the labor component of delivering the service by substituting with technology where possible. Replace expensive domestic labor with inexpensive global talent. Standardize service delivery to allow “junior” talent to produce deliverables.
This reduces or eliminates the sales and marketing costs from a boutique’s income statement. This can turn a marginally profitable firm into a profit-generating machine.
There may be more attractive industries available to the firm that they should pursue.
Implementing these strategies can be difficult and may require guidance. A mastermind community might be the source of guidance founders need when operating in a mature industry.
A mastermind community, such as Collective 54, can help founders of service firms operating in mature industries. Joining a mastermind group dedicated to professional services firms means you are joining a community populated with some firms operating in mature industries. The tools, templates, and frameworks created by a mastermind community focused on the professional service industry are highly relevant to mature industries, and the benchmarking data produced by Collective 54 is sourced from firms like yours.
Professional service firms have to learn how to compete in mature industries. Despite the challenges, there is success to be had for those who learn the business environment and adapt to it. And with your peers at Collective 54, you get the advantage of communal wisdom to give you the leg up you need.
