Why Specialization is Essential for Agencies (And How to Get it Right)

Learn why specialization is essential for every agency and how to get it right in this post.

In the agency world, all evolutionary pressures point towards specialization.

The skills you possess at the beginning of your business define the kind of clients you get. These early clients earn you similar referrals. And before you know it, you’ve specialized in a particular skill or industry - even if you never intended to.

But at the end of a tough year when the entire market collapsed overnight, it’s time to ask yourself: is specialization really desirable? Is it even necessary? If it is, what kind of moat can you build to protect and grow your agency?

In this post, I’ll do a deep dive into the specialization debate. You’ll learn:

• How specialization hurts your growth potential
• The three types of specialization and which ones you should pursue
• How to develop new skills and specializations

The Specialization Conundrum

By all conventional measures, specialization is a good thing.

Specialization is what helps you survive in crowded markets. It helps you carve out a niche and build the reputation of a true expert. It even makes hiring easier - you can hire for the exact specialized skills you want instead of wasting resources in training generalists.

In large, undifferentiated markets - like agencies - specialization is vital.

With nearly 40,000 agencies in the US alone, your competition is immense (Image source: Statista)

However, as a lot of agencies learned in 2020, specialization can be risky. You might be able to corner a market, but the market itself might disappear overnight.

A lot of agencies that focused on restaurants and fitness trainers discovered this in 2020.

Pivoting, that term Silicon Valley loves to throw around, becomes difficult, if not impossible when your entire business is built around specific skills and markets.

But it doesn’t always take a crisis to make specialization unsustainable. The demand for your specialized skills can atrophy over time. Narrow skillsets can be automated, productized, or outsourced away.

Even niche markets can erode due to factors outside your control (regulation, new competitors, tech improvements, etc.)

Worst of all, a specialized agency can be the victim of its own success. You can so dominate a market that when you try to branch out, your reputation can box you in as the “xyz specialists”.

This, essentially, is the specialization conundrum:

In an undifferentiated market, you need specialization to stand out and earn clients. But if you specialize too much or in the wrong skill/industry, your entire business is one innovation or one crisis away from falling apart.

The Generalist Mirage

If the Jenga Tower of specialization is always one crisis away from tumbling down, it is better to be a generalist?

It can appear so, especially if you go down the list of the world’s largest agencies. Can you really tell what Ogilvy, Havas, and Leo Burnett specialize in besides “creativity”?

In fact, I would even say that a lot of creative-led agencies started out with no clear specialization in mind except for a desire to do good work.

This generalist pursuit of “creativity” is a false mirage. Yes, generalists can pivot faster and they do have access to larger and more varied markets. But they have no way of standing out and they keep competing with the agencies much larger than theirs.

A “creative agency” is competing against all other creative agencies, including the $1B behemoths on Madison Avenue.

What you essentially need is a specialized agency with a generalist core. Such an agency can build expertise in one niche while also constantly branching out to corner other markets.

Building a Better Specialized Agency

Most agencies approach specialization in a haphazard manner. They either pretend to be generalists (going by the number of “full service” agencies around), or they dig so deep into a niche that it’s difficult to branch out.

Some treat their specialization as their positioning (it’s not). Others tie their brand to their specialization, leaving no room to maneuver.

While specialization is essential for agencies, you have to approach it the right way - as I’ll discuss below.

1. The Three Types of Specialization

Agencies typically specialize by:

• Skill, i.e. focusing on a specific set of skills, such as “content marketing agency”.
• Target market, i.e. focusing on a specific niche, such as a “marketing agency for dentists”.
• Location, i.e. focusing on a specific geographical area, such as an “Atlanta-based marketing agency”.

Often, agencies will have more than one specialization, say, a “content marketing agency for dentists”. The larger the target market, the more tiers of specialization it can accommodate. New York can have a lot more SEO agencies for dentists than Auburn Hills, Michigan.

Some agencies also claim to specialize by process - such as using AI to create PPC campaigns. But that’s not specialization - that’s just differentiation for a specialization, which can be a very powerful tactic (more on this later).

Let’s take a closer look at these three types of specialization.

Specialization by Location was extremely powerful in the pre-internet days. If you were the only agency in town, you could be confident of winning over most local clients. You could build a massive business simply by finding underserved cities and plopping an office downtown.

In the post-COVID age, however, this specialization is the most untenable. As remote work becomes the exception, not the norm, being local doesn’t earn you any substantial competitive advantage. In fact, it just adds to your costs.

My recommendation: ditch specialization by location as early as you can. It’s not the competitive moat it used to be in the era of remote work.

Specialization by Market can be tricky. Your growth is tied to your target market. This can be wonderful if the market itself is growing. If it’s not, however, pivoting can be difficult. Agencies that catered specifically to restaurants and live entertainment discovered this in 2020.

Ideally, you should keep a very close eye on the market. While you can’t really predict Black Swan events like COVID, you can project the market’s growth over 1, 5, and 10 years.

Ask yourself: is the demand for this product/service/industry going to increase? What outside factors can jeopardize its growth (such as regulations)?

My recommendation: Going all-in on a single market can be profitable and make for easy positioning. But it’s also important to keep reaching out to other markets. It’s also a good idea to start off with a larger initial target market (say, “small businesses” instead of just “tech startups”) so that your growth isn’t constrained.

Specialization by Skill: Creative agencies rarely declare their creative specialization, but it’s common among marketing agencies. You might be a ‘PPC agency’, an ‘SEO agency’, a ‘social media marketing agency’, etc.

This is one of the safest specialization tactics, provided:

• Your specialization is tied to a skill and not a platform (i.e. “social media marketing agency”, not “Instagram marketing agency”)
• The skill itself will be in demand for the foreseeable future

I can’t stress #2 enough. Deep specialization in a specific skill is an easy way to build authority, but it also makes for shaky foundations if demand for the skill is uncertain.

My recommendation: While you’re building expertise in your target skill, keep adding related ancillary skills to your quiver. You want to be a ‘T’ shaped agency - deep expertise in one core skill, broad knowledge of other skills.

This makes it easy to pivot should your primary skill fall out of vogue.

2. Specialization vs Differentiation

A common point of confusion, even among agencies, is the conflation of specialization with differentiation.

Specialization is what you do.

Differentiation is how you do it differently.

If you leverage massive datasets to create AI-powered PPC campaigns, your specialization is “PPC” and your differentiating factor is your use of AI.

Agencies frequently mistake their key differentiating factor for their “specialization”.

Generally speaking, your differentiating factor is applicable to all your skills. If you use your AI skills to improve your clients’ PPC campaigns, you can also, theoretically, use AI to run better SEO and social media campaigns as well.

In an undifferentiated market, a key differentiating factor is crucial. It’s not enough to say that you’re, a SEO agency - all your competitors make the same claim. You need to highlight something that makes you stand out.

It’s important that this “something” aligns with the needs of your target clients. Risk-averse clients, for instance, might only go with agencies whose differentiation is that they’ve worked with established enterprise clients in the past.

Broadly speaking, you can categorize key differentiating factors as follows:

• Process-focused, such as a unique way of managing projects. Useful in industries with high project failure rates (such as IT).
• Tech-focused, such as a proprietary technology for handling projects.
• People-focused, such as access to a team of top talent.
• Results-focused, such as a lot of case studies or blue chip client lists.

Try to couple your specialization with a key differentiating factor. Pick one of the approaches above based on your own talent, tech, and results. It will go a long way toward helping you stand out in crowded markets.

3. Approach Specialization Like a Generalist

The world’s top creative agencies are rarely, if ever, known for specific skills.

Instead, they build departments that specialize in certain skills. Some even build entire sub-brands (such as Ogilvy’s digital marketing brand, Neo@Ogilvy).

This approach has two benefits:

• It allows the agency to scale up and down to match the demand for a specific skill
• It frees up the brand from being associated with (and limited by) a specific skill

Of course, this approach only works for large agencies. As a smaller agency, you have to start out focusing on specific skills.

But that doesn’t mean you have to be constrained by your current skills. Large agencies become large by constantly adding skills and expanding their market.

Start by running a ‘skill audit’. Briefly identify:

• The core skills you currently have
• Ancillary skills that you can develop easily
• Secondary skills that complement your core skills

For instance, if you’re a content marketing agency, content marketing would be your core skill while ‘SEO’ would be your ancillary skill. In most cases, you can retrain your existing talent with an ancillary skill.

Secondary skills are usually profitable skills you have to hire new people for. A SEO agency that hires WordPress developers to offer custom development is building a secondary skill. A strong secondary skill can be a key differentiating factor by itself.

Develop your secondary skills. Your goal should be to develop your secondary skills enough that they can complement or even replace your core skills. This effectively expands your potential market while also mitigating overall risk to your business (more skills, after all, equals more opportunities).

The general path to developing a secondary skill is to identify from your ancillary skills that is a) profitable, and b) broad enough to justify its own department. Hire people for this skill and slowly build expertise in it.

Over time, this can help you develop multiple core skills with dozens of ancillary skills between them. This not only gives you a larger potential market, but it also greatly expands your competitive moat.

Keep your brand “specialization-free”: Lastly, ensure that your brand isn’t tied to your specialization. You don’t want to be known as the ‘X’ agency in the market (where ‘X’ can be any skill, industry, or target market).

While a hyper-focused brand can be useful when you’re starting out, it can be incredibly limiting when you’re trying to branch out of your initial specialization.

For more on branding and positioning, see our article on the secrets of perfect positioning.

Over to You

Specialization is a thorny issue. You have to do it, but it can also constrain your growth. If your focus is too narrow, you limit your potential. Keep it too broad and you’ll struggle to attract clients.

Hopefully, this article helped you make sense of the specialization issue.

One way to differentiate yourself is by changing the way you manage your projects. By using tools like Workamajig, you can run your projects more efficiently. Deliver projects ahead of schedule and under budget, and you’ll stand out to clients.