TL;DR

• There are real risks to specializing a digital agency in a narrow niche.
• Agencies exist because most in-house teams live further down the adoption curve, but that curve shifts, and commoditization can arrive faster than planned for.
• Building your business on a singular platform or vendor puts you at their mercy for better or worse. We just published a PR Brief on the latest WordPress situation specifically about this.​
• Industries can shift quickly and relying on a specific trend to grow off of must be viewed as a potentially temporary uplift.
• Adapting skillsets can be difficult, especially if your team is made up of hyper-specific SMEs.
• Niching down and positioning your agency as an expert helps agencies grow faster, but it’s not without its challenges.
• Positioning is one of the key areas we evaluate in our Agency Revgen Review Service. Feel free to reach out if you'd like us to take a look at how your agency generates revenue and provide actionable prioritized steps to improve it.

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There Are Risks to Specializing

Narrow positioning and niching down are powerful moves. When done correctly, it puts your agency in a category of one, making you the go-to for high-value clients searching for specific expertise.

This lets you get better results for your clients, charge higher rates, grow faster, and earn higher margins.

I’ve seen this play out with my agency clients, and the research data on it has been compelling. This is from our How Digital Agencies Grow Report from earlier this year. Those that specialized by service and industry had average LTVs that were 43% higher than their generalist counterparts.

In our Bending, Not Breaking: State of Digital Services 2024 Report, we showed that specialists both grew faster and were more profitable than their generalist counterparts.

Specialization works.

With that said, how you go about specializing matters.

The process isn’t exactly complicated, but it does have its nuances.

Part of that process is understanding the risks associated with specializing. Once you understand them, you can design contingency plans to mitigate their impacts.

Let's take a look at four of the top risks and how to mitigate them.

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Commoditization

Your niche is valuable now, but what happens when it becomes the industry standard and price wars take over?

Agencies exist because most in-house teams live further down the adoption curve.

The thing is, that curve keeps shifting and different services commoditize at different rates.

This presents a risk to specializing in a specific service.

You can mitigate this risk by paying attention to commoditization rates for various services and maintaining an experimental portion of your firm focused on “what’s next.” This way, you have internal talent already up to speed on whatever the new thing is and when you start seeing pricing dip or in-housing accelerate, it’s easier to pivot.

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Platform or Vendor Dependence

Relying heavily on one platform or vendor has its own risks. One algorithm change, one policy update, and your agency’s core offering could be in jeopardy.

Want a real-world example?

Enter the WordPress vs. WP Engine situation.

We did a quick survey on this a few weeks ago and here are the high-level results:

Just over half the respondents are considering other CMSs due to the drama.

That is a hell of a response. Even if only a fraction of agencies go through with moving to another CMS, it could be a major market shift.

The most common CMSs leaders are looking at switching to are Drupal and Webflow.

Exactly half the respondents are considering using other hosting companies now.

The most popular options were AWS, SiteGround, DigitalOcean, and Pantheon.

Next up, we asked how exactly this is impacting agencies today.

The keyword here was uncertainty. Account managers and salespeople are fielding calls and emails from worried clients about something that should have been a solid thing. Hosting isn’t something that traditionally carries a ton of risk, relative to other parts of web projects, and now it’s another area of concern for clients.

Leaders are frustrated with the whole thing, and many are pissed at Matt for making their lives more difficult.

Finally, I wanted to quantify the impact of all this.

Is it something that’ll be mostly insignificant and blow over once everyone’s over the news story, or will it have a massive impact on agencies?

On a scale of 1 to 5, with 1 being insignificant and 5 being massive, the average impact scored a 2.7, so slightly under half.

Luckily, agencies have enough other options for CMSs and hosts that this won’t cause massive issues, but switching tech stacks, or migrating a bunch of sites from one host to another is still a lot of work.

For those agencies that offer sites on other tech, many of them are seeing this as a huge opportunity. Multiple leaders mentioned that they’ve already built out campaigns to target companies on WordPress or on WP Engine.

It’s still too early to know how this’ll play out long-term, but it seems like it’ll cause at least some shift away from WordPress and WordPress-focused hosts.

I packaged our findings into a brief-style mini-report. Grab the full Promethean Brief: What’s With WordPress? here.

Mitigating this risk is a bit tougher than the service mix one.

It’s tougher because you typically hire talent that’s familiar with the platforms you use and then their additional professional development training is typically platform-specific. If you’re a HubSpot shop, your team is going to be proficient in HubSpot, and even if you hire people who have some experience with other platforms, their day-to-day work will all be in HubSpot. You'll also probably send them to HubSpot-related events.

There really isn’t a great way to handle this for small shops.

My best advice is to burn bright and fast and grow to a size where diversification makes sense, somewhere around 50-75FTEs. At this size, it’s possible to set up and properly resource sub-brands with different positioning. Don’t try this too early tho or it’ll be a mess.

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Shifting Industry Trends

Trends, regulations, and market needs can change quickly. These have the potential of making your hyper-specialized niche irrelevant. If your entire positioning rests on a specific industry regulation that changes, you’re left scrambling to realign.

Treat your niche as a strategic starting point, not an endpoint. Monitor industry trends and pivot your positioning when necessary.

Make strategic evolution part of your DNA.

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Talent

Shifting services can be tough when your team is built around a narrow set of skills or hyper-specific SMEs. If your positioning needs to change, your team needs to be ready to adapt, and reskilling can slow you down.

Mitigate this by investing in experimenting with new tech/services. A culture that embraces growth and learning ensures your agency is not only specialized, but also nimble when the landscape shifts.

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Position Wisely

Niching down and positioning your agency as an expert helps agencies grow faster, but it’s not without its challenges. The agencies that thrive are those that understand the risks, plan for them, and build mitigation strategies into their core operations.

Many of these mitigation strategies might seem expensive, from both an ops. and financial perspective. This is why it’s absolutely critical to get your strategy, ops, and financial management in order. When those aren’t properly built out, you’re adding risk.

That mitigation difficulty is also higher when you run smaller agencies. It’s one of the reasons that smaller shops are inherently riskier endeavors (from the owner’s perspective) than larger ones. Many of these risks require a 50+ FTE agency to solve successfully.

Luckily, they’re all solvable. It just takes a bit of forethought and prudent investments.

Know the risks, have a plan, and ride specialization to the next level, but be prepared to shift with the market.

Positioning is one of the key areas we evaluate in our Agency Revgen Review Service. Feel free to reach out if you'd like us to take a look at how your agency generates revenue and provide actionable prioritized steps to improve it.

-Nick