From the Chairman: Expanding your business
If vertical or horizontal expansion (or both) is in the cards for you, approach with caution.
Business has been good lately in the A/E professions. Opportunities abound, yet many firms struggle with the question of if, where and how to grow their business. Expansion is tough, complicated and expensive, and the landscape is littered with firms that have struggled to diversify and expand their practices. What’s the best strategy – vertical, horizontal, or both?
Vertical expansion suggests there are other services current clients are buying that your firm could offer as a suite of services. If well integrated, each one becomes more valuable than if offered alone. Consider the number of design-related practices we often align with, formally or informally, that round out the full array of services our clients require to enhance their business performance. These include master planning, facilities management, lighting design, graphics and a host of others.
Here’s an example and a cautionary tale.
In our practice at Gensler, we defined “design” as anything that could be seen or used and requiring management over time. This included a full array of carefully integrated services. Each person, working in their area of expertise, was thoroughly briefed by colleagues working with a given client. In that way, we all knew how the client liked to work, their priorities, what they were trying to achieve, and a complete “who’s who” within the client company, so everyone understood how decisions were made and who had the authority to make them.
An example includes a manufacturing client for whom we were providing master planning for their corporate campus, conventional architectural services, renovation, interior design, showroom design (more like store planning), product design and graphic design. The graphic design was not confined to their facilities, but also included print graphics, marketing collateral, brochures, advertising copy, with a little bit of branding and identity thrown in for good measure.
We thought we were doing pretty well and invited our client (she had oversight for all of the areas we were working in) to attend the annual Detroit auto show with us. She was a real auto buff, and we thought she would enjoy tagging along and meeting some of our auto industry clients. She was thrilled and, after having a wonderful day at the show, joined us for dinner. After some light chatter about cars, she said, “You know, I’m really quite worried about our relationship.” That sent a chill up my spine.
She was concerned that as a firm we could not be truly world-class in every type of service we offered. She likened it to an ad agency that expands their business by adding areas of specialty from media buying, to print and collateral material, to branding. But the agency is only truly “world-class” in one core strength.
Gensler worked very hard to compete in each of our service areas on a stand-alone basis with firms specialized in those areas. Our “secret sauce” was that each service was truly integrated with the others to deliver more comprehensive solutions. I made that pitch to our guest but suggested she benchmark us against firms she considered “world-class” in any of the areas we offered. I said I would check back in a few months to see how our work compared.
When we spoke again, I asked how we were doing. Her response? “The work you do is terrific, but the best part is it’s well-coordinated with everything else we’re doing. It’s just too hard to manage a bunch of stand-alone firms who have no incentive to collaborate with everyone else we work with, or to really get to know us, our priorities, and our ways of working.”
The lesson about expanding vertically? Each service has to be able to stand alone, competing with the best. Then, you have to add something very special, demonstrating your added value through flawless and seamless delivery of integrated services.
Horizontal expansion refers to a new area of practice for your firm. Do you hire someone with a reputation in that specialty? Someone you think has the skills to grow a practice? Do you acquire a firm with that expertise? Is there someone already within your firm who has expressed a strong interest in pursuing healthcare, higher education, critical facilities, airports, criminal justice or something else that is new to you? Those questions apply to vertical expansion as well.
Any of these options can succeed, but each contains pitfalls. Hiring an individual means committing to building a practice to support what he or she might sell. This represents a substantial expense before the work is actually booked. But it’s hard to book the work until a team is in place. Acquiring or merging with another firm offers a potentially faster path to the market, but the A/E professions are littered with failed acquisitions and mergers when the cultures of the firms are not well integrated.
An opportunity to make all of your work better comes from a broader practice through cross learning and leverage between your practices (e.g., airports and hospitality; retail and branding and graphics). Otherwise, what have you gained by having them under one roof?
Successful expansion is not just about the ability to do the work; it’s also about defining your offering in a unique way. Without that, you’re simply a commodity. It’s hard. So, only do it if you’re prepared to expend the effort and investment to become among the very best at the areas you pursue, and can demonstrate a unique approach no one else is offering.
Perhaps both vertical and horizontal strategies are the way to do exactly that.
Edward Friedrichs, FAIA, FIIDA, is a consultant with ZweigWhite and the former CEO and president of Gensler. Contact him at firstname.lastname@example.org.
This article first appeared in The Zweig Letter (ISSN 1068-1310), issue #1067, originally published 8/11/2014. Copyright© 2014, ZweigWhite. All rights reserved.