The first time I heard this saying was from John Lee Dumas in 2015. I was hanging out with him, Michael O’Neil and a dentist from Texas. We spent the day at John’s condominium in San Diego, California. Me and the dentist had paid a lot of money to attend this intimate mastermind, and we were learning how to use podcasting to build our businesses… from one of the most famous podcasters in the industry.
Dumas is the founder and host of Entrepreneurs on Fire, a podcast where he interviews successful and inspiring entrepreneurs to learn how they became successful. If you haven’t listened to his show, I highly recommend you do.
A Niche in Time…
Niching is how I took my prior company, a professional employer organization, from small potatoes to big cheese within a few short years. I stumbled into a niche that became the secret to the company’s success.
It was 2010 and I was sitting in the conference room of our workers’ compensation insurance company when I asked them how they felt about us taking on temporary staffing companies as clients. They basically said they didn’t like the idea, and honestly, I wasn’t surprised. After all, it was hard enough for an insurance company to keep tabs on the risks the PEO was taking, because they have to look through the PEO to see the hazards that exist and the potential exposures surrounding each of their clients.
Not only that, both PEOs and temporary staffing companies have a history of defrauding their insurance companies by misclassifying and under-reporting payroll. Some have even gone so far as completely misrepresenting the nature of their business and extending coverage to other entities through a practice known as “piggy-backing”.
I asked them if they’d allow us the opportunity to show them how we can control the risk and give them a completely clear vision of the exposure, through enhanced underwriting and the application of technology. They agreed to consider it – mainly because they loved what a fantastic job we were doing at underwriting new clients, controlling the risk, and managing the losses post injury. After all, this is the foundation we built the company on – superior underwriting of hard to place risks.
Back at the office, we set out to create a system where we’d thoroughly underwrite temporary staffing prospects down to their client companies and provide our carrier with crystal clear visibility, so they could know (at any given point in time) exactly where our staffing client’s co-employees were working, and in which class codes.
The system became known as SMART and it was a three-way facing application:
- Our clients used it to input their client information, including annual payroll by class code and job descriptions. We required them to submit every new client, location and class code for approval, prior to placing workers on the job.
- We used it to underwrite the requests and submit “outside-the-box” situations to our carrier, and to manage the data for reference, reporting and validation.
- Our carrier used it to approve or deny the requests and to see every client’s client, and every class code in use at their locations.
Next, we created a temporary staffing addendum to augment our client service agreement. This required our clients to use the SMART system and identified the penalties for failing to comply.
We also created software to validate each weekly payroll submission against the data in SMART. If the payroll file contained hours and earnings for a client, location or class code specific to that client or for a location that wasn’t approved, the payroll processing stopped, and the file was referred to the underwriting department to be investigated and cleared.
Our carrier loved what we had developed and allowed us to start bringing on temporary staffing clients, which we did in a BIG way. The company’s growth took off because we had found a way to help an under-served market that was desperate for affordable workers’ compensation insurance, and a stable carrier relationship.
By solving a problem for the insurance company, we were able to solve a major problem for a vast portion of an entire industry. And now my former company is the largest PEO provider to temporary staffing companies in the U.S.
A New Niche
Fast-forward to today and I’m attempting to repeat that success in my retail agency. I’ve identified my target market, the product, and my unique offer – what sets me and my brokerage apart from others selling the same policy from the same carrier. Coming up with the unique offer and structuring it in a way that doesn’t violate state anti-rebate laws was the hardest part of the equation.
Basically, what we have is an insurance company with a business owners policy (BOP) that’s been designed to meet the unique needs of the business classes which they have an appetite for. To sweeten the deal, they’ve added coverages which aren’t offered by their competitors, and the policy can be quoted and bound online. We’ve cross referenced their appetite guide with their bindability rates and identified an under-served industry we’d like to go after.
We aren’t experts in the service that our niche industry provides (not yet anyway), but we are consumers of the service. Rather, we are experts at being an employer, which is one of the biggest problems keeping many of these businesses from growing, and we’re experts at business operations with a long history of starting, growing and selling various companies. We’re also highly skilled marketers, which is another challenge standing in their way of achieving greater success.
Combining our skills in these areas allows us to bring a lot of value to the table by offering a unique one-stop service solving several key business challenges. It also gives us the ability to start a business relationship from multiple angles.
Finding a Niche
I stumbled upon the temporary staffing opportunity when I met two guys from California who saw the need for PEO services in the industry. They knew there was a hole in the market, and they asked if we could help fill it. This time around, the opportunity has come from a friendship dating back to the early 1990’s (I was really young then).
So, if you need help finding a niche, look around you. Talk to your business associates and friends. Choose an industry that’s aligned with something you like to do. What are you passionate about? If you love boating, you could focus on marine stores. Success doesn’t come easy and it will take long hours and loads of hard work, so loving what you do is critical to your success.
Once you’ve identified your niche, become an expert in the risks which that industry faces and learn as much about the business as possible. Since you’re passionate about it, you probably already know a lot and can build on that foundation of knowledge to turn yourself into the industry’s go-to insurance guru.
Next, find which markets have the best coverage… the ones who have customized it specifically for that niche and provide the best value. Find at least two and always be on the lookout for new carriers catering to that space. You don’t want to be caught without a plan B when your current market has a change of heart and decides they don’t like your industry any longer.
Just the other day I talked to Ed, an associate of mine, a retail P&C broker on the east coast. He told me his story of how, a few years ago, he sold his hodge-podge book of business and downsized his agency to a one-man band to focus on a niche industry.
He did exactly what I’m talking about here. He identified a unique product that was designed for a specific segment of the technology industry (something he’s been interested in), then became an expert in the unique risks and the coverage form. He combined that with exceptional service and… winner, winner, chicken dinner!
Ed has been successful even though he hasn’t added a unique offer. If he did… or should I say, once he does, he will significantly accelerate his growth. Because, when the perceived value exceeds the cost, you win.
Jack of All Trades and Master of None
Creating a niche for your agency is not a new concept, but it can be hard to execute and even harder to stay the course. Transition isn’t easy – I know… and so does Ed. But it can be extremely rewarding, so don’t shy away from considering it.
Don’t get me wrong, you can be a generalist and still be very successful… obviously. There are many examples of that. However, it becomes a lot easier to do that the bigger your business is. Also, don’t confuse mastering one industry with not having a broad range of expert level knowledge. It just means you’ve chosen to focus on becoming the exceptional player in that one space. And being exceptional will sell more policies.
Have you read the book “Good to Great” by Jim Collins? If not, you should. In his book, Jim talks about the Hedgehog Concept, and on his website, he summarizes it this way:
“The Hedgehog Concept is developed in the book Good to Great. A simple, crystalline concept that flows from deep understanding about the intersection of three circles: 1) what you are deeply passionate about, 2) what you can be the best in the world at, and 3) what best drives your economic or resource engine. Transformations from good to great come about by a series of good decisions made consistently with a Hedgehog Concept, supremely well executed, accumulating one upon another, over a long period of time.” –Jim Collins
Remember, progress and growth come from doing the things we’re most afraid of. If you want to change your status, transform your business and exceed your own expectations, you need to get outside your comfort zone and learn to enjoy suffering because that is where the magic happens.
The riches are in the niches, so if you want to improve your odds, stop trying to be all things to all people and be a hedgehog instead. Serve a specific industry… better yet, a specific segment of an industry. Become an absolute expert in your customer’s business and create a unique offer that goes beyond the policy of insurance itself and the traditional broker services, to deliver value that exceeds you client’s expectations.