Small Firm Focus: Coming to grips with the specialist vs. generalist debate

Many AEC firms stake their success on developing expertise in a few market sectors. That strategy can pay off with profitable contracts from high-value clients who pay a premium for specialized knowledge and skills. The opposite end of the spectrum is to be a "jack of all trades, master of none" that competes largely on price. That strategy often means taking on marginally profitable work and working hard to get it.

Market specialization can be risky, though, especially for small firms, which can be hindered by a lack of staff more than larger firms, particularly if most staff members specialize in just one or two niches. Another risk revolves around the ups and downs of the business cycle. What if your two or three major market segments start sucking wind at the same time? Choosing which segments to pursue and mitigating the risk factors of specialization is crucial to success.

Systems Building Services, LLC (Overland Park, KS), a 25-person consulting engineering firm, has been grappling with the specialist vs. generalist issue for many years, moving more towards the specialist strategy recently. Many of the firm's engineers came from the steel manufacturing industry, so the firm has always had a strong presence in that area. "We market heavily in it because we're knowledgeable in it," says Jeff Needham, the firm's president. But which other markets to focus on has been a longtime source of concern.

Twenty-five-person firm Fee Munson Ebert Architecture and Design (FME) (San Francisco, CA) has also debated the specialist vs. generalist strategy for many years. It's a philosophical deliberation that became even more pointed while the Bay Area suffered through a deep recession over the past few years. The firm has a strong presence in high tech and financial corporate office buildings— both of which have suffered recently— and retail sites, but also dabbles in other areas such as church renovations and biotech projects.

Capitalize on hot markets

Biotech presented an opportunity for the firm to zero in on a hot new market in recent years, says Bill Stotler, FME's director of marketing. When biotech first picked up momentum, however, the firm was busy with other areas. Recently, biotech activity has slowed, so the firm hasn't made a huge push into it, though it has landed some small contracts. In order to make a strong push into a new market, timing is critical. "You have to figure out where on the growth curve a market is going to get hot," Stotler' says. Jump in on the downside, and you'll likely expend a lot of time and energy with little to show for it.

Apply expertise to other industries

The firm's expertise in steel manufacturing projects translated well a few years ago to the power generating industry, a sector in which the firm had not previously been involved. During the energy crunch in California and other states in 2000, the firm landed many natural gas power generation projects by marketing itself to large engineering firms that were scrambling to meet demand from electric companies for new plants. But as the economy cooled and the Enron scandal erupted, electricity demand plummeted followed soon by drastic cutbacks in power station projects. When the bust came, Systems Building Services suffered, but fortunately had other healthier market segments to fall back on.

Though the power generation bust was a painful reminder about how the fickle economy can turn quickly, the firm nonetheless benefited from its foray into a new market as it now has a new specialty that it can market when power companies start building new plants. "Now we're power plant engineers,' Needham says, as well as manufacturing plant engineers.

Cut back on low-margin work

About three years ago, Needham's firm reduced its marketing to architects and redirected those efforts towards owners and prime design/build contractors. In working with architects, Needham says, his firm often bid on contracts in a few sectors with low margins. "If you're doing schools, churches, and retail— things that many firms can do— you've got to compete on price," Needham says. But working directly for owners and prime contractors in specialized markets tends to bring more profitable work, he says.

The firm continues to work with some architects but is choosier today about the projects it bids on. That wasn't the case in the early days. "A small firm has got to be ready to do anything," Needham says. Stotler says many of his firm's project managers are flexible enough to switch back and forth between market sectors and even between the firm's two main disciplines: core and shell design, and interior design. This flexibility makes adjustments to the ups and downs of market cycles easier.

Both firms show that the specialist vs. generalist debate doesn't have to skew hard to either extreme. A hybrid approach of establishing a few specialties while continuing to take on work in several other markets reaps the benefits of specialization while cushioning against market volatility.— PETER FABRIS (pfabris@zweigwhite.com)