Niche Markets and Specialization as a Strategy for Growth

Igor Afanasayev 00:00 And coming up next is our next talk, which is called niche markets and specialization as a strategy for growth. And our next in the author of this presentation probably doesn't need any introduction, because he's one of the most recognized names in the industry. I'm talking about Renato Benny Natto, who is a CEO, the CEO, at Nemes insights. So while we're waiting for annatto, to join us and share his video, I'll just remind you that we have a localization community, and you have a link over here that you can join in to discuss things that you hear about today. And I have Renato. And the Word has it. And the picture says that you're today at an unconventional location. Is that right? Renato Beninatto 00:50 It's absolutely right, Igor. Thank you, I actually changed the and I'm going to start it here. I changed the layout of my presentation, because I had a boring slide. And I was able to get be on vacation at this period of time, and I got a very good opportunity. This is the view. Can you see my screen? Igor Afanasayev 01:17 Yeah, absolutely, we can. Renato Beninatto 01:19 Okay, so I just went walked 30 meters and took a picture of the place that I'm staying here in Tahiti in the island of Moria. And I think that for me, it's not locked from home, but locked away from home. So Igor Afanasayev 01:36 is it even legal to work from there? Renato Beninatto 01:41 I don't know. It's, it's, it's been amazing. I arrived the day before yesterday. And I am on a very, very small island. There's nothing here. So just walk to the beach, snorkel, swim, kayak, and then come back, and you go to sleep with the chicken, which is fantastic. So it's well deserved rest. But I couldn't miss miss a great event with so many great speakers. I've seen that the day has gone very smoothly. And I followed several of the most recent presentations and the quality as usual, it's excellent. Congratulations for putting this together, especially for Kate. I know she put a lot of work into it. Igor Afanasayev 02:22 Yeah, thank you. Thank you so much. And we're really excited about how things are going. So I know you have lots of things to say. So without further ado, please take the mic. Renato Beninatto 02:32 I'm taking it away from here. So the topic that I was asked to cover is the topic of specialization, especially at the moment that we're everybody's concerned about growth. To be very candid, I was never concerned about growth. Because I've been following this industry for over 40 years, and there hasn't been a period in our industry where we haven't had growth, maybe the growth rate slows down. But we the reason why I like to talk about niches is that I was doing a workshop in London many years ago. And I was talking about niche markets and specialization. And at some point, I said, you don't want to be that company that does any language, any topic, who's everything to everybody. And one of the participants in the class just pulled out his business card and said, That's exactly my marketing message. So I went online, this wasn't the company. And I did a quick search for any language, any topic. And you have several companies that do that, of course, there is a market for this transactional kind of work where the specialization is not that relevant. But if you want to grow specialization is one of the ways that can put you on that route. So let's let's start with that people love is to look at data and look at numbers and this is what names the as a market research company does. So this is a quick every year we produce the ninja 100, which is the ranking of the top 100 companies in the world. And it comes out early February, March of every year. And we collect a lot of data and a lot of information. So this is a quick snapshot of how the industry is distributed in terms of topics, major areas of specialization and percentage distribution of the business and I see that the left side of the image was clipped I apologize for that. This information is available on the DMZ website. You can go search for it and download it. But you see that the biggest market is still the public sector, financial and legal comes second. And then media localization. I think that media localization is ahead this year of financial and life sciences. And insight. In this picture, you can also see who are the main players in each one of these segments. And who are the companies competing at the top, you're going to see that there are some companies that aren't in multiple niches, multiple segments. And you can also and we will discuss this later during this presentation. Within each one of these major verticals. There are sub niches right if you go into like sciences, you can be in medical devices and clinical trials in pharmaceutical, there are sub niches inside the niches. If you look, for example, in the financial and legal, you can have intellectual property, you can have. law law firms with contracts, you can have lawsuits, they're different segments inside sworn translators translations, in some countries, there are six different niches inside each one of this market. So you can go as deep as you want to go to a segment where there is only one company in the world that is able to do that service. This would be the the extreme niche. So we can look at specialization from multiple angles. One of the angles is looking as the as at the verticals. And looking at the NZ 100. Here are the top three verticals that we see for the players in the industry. And like I mentioned, life sciences, legal finance and patents represent almost 20% of the industry of the top 100 companies in the industries in that area. And surprisingly, for us in 2019 media and entertainment took such an important role there. I can software which was really, really big 1015 years ago, even 20 years ago, is losing a little bit of momentum in there. You can also break down and specialize your services not only by vertical, you can find niches also within the services that you provide. And among the nearly 100 The top services that are provided are here translation is by far the leader localization interpreting. So inside interpreting you can have submissions, so you will have video on site interpreting Video Remote Interpreting over the phone interpreting, you will have legal court interpreting you will have you will have community interpreting, there are many other sub categories inside each one of these categories. So another way that you can slice the market is by type of services. And one of the things that I like to oops, I went too far, one of the things that I like to highlight is that it doesn't really matter so much how you position yourself unless your clients know that right. So one of the things that we we look when we look at the industry as a whole is that there are in the mind of the buyer, the buyer doesn't think about the top 100 companies in the industry, they they think about the players in their niche space. And here you have rankings of companies inside each one of these. Rank inside of this segments. Look at gaming, local game localization, an area that is booming, and that has a lot of overlap with media localization. But there is definitely a big leader there with keyword studio that is buying up a lot of smaller players around the world. It's an area where you can also inside game localization, you can have several subcategories to specialize. And by the way, I'm going to leave lots of time. And I'm not monitoring as I'm speaking here for for your questions. Because I think that there is room for a lot of conversation. So when we talk about specialization, we're actually talking about differentiation, right? The goal for a business owner and or an executive in an LSP is essentially to identify ways to differentiate to get in front of the buyers and have an advantage in the the reasons why we want to specialize is that by specializing by speaking the language of the buyer, and addressing their specific needs, we have the opportunity to become a premium vendor and to become and to take the conversation away from pricing. A very common conversation that has been having happening over decades in our industry is this concept of commoditization in the way for you to escape from the sensor word, rat race at the bottom is to specialize and become a leader in some kind of specific niche market where nobody else can, or very few companies can compete with you. So specialization is one of these differentiation strategies. One of the things that I've learned in sales training is that very interesting mantra, it's make yourself equal before you make yourself different. And I find myself having these conversations with business owners over and over again, this this attempt to focus on USP or unique selling proposition, which is an old concept of differentiation, that doesn't work very much in, in an industry like the language services industry, where the barrier to entry, the way for you to become a player in the market is very low, anybody can come in into the market and set up shop and they are competing with you overnight. So the conversation about differentiation is very dry, because the differentiation as as a strategy doesn't really create opportunities for you. And specialization is one of the few ways that you can differentiate and not be that company in the beginning that does any topic any language really fast. With high quality, actually, you can go to some of these generic LSP website and play the localization bingo, what are the all the the words that you get, and that all of them will repeat over and over again. But going back to this, this concept of specialization, usually what I have found in my experience in interviews and through consulting and working with different companies, the way very seldom, the specialization strategy happens because of a strategy decision. It's usually serendipitous, it's usually by chance, it's because they achieved they got a very big project, I like to tell the story. The first time I got into localization, I had a translation company in Brazil 2728 years ago, and somebody calls me from Ireland asking if I did localization? And I said, Yes, yes, of course, I do localization, but I had no idea of what localization meant. And there was no Google to go and search for it. But I struggled, I got it. And the big advantage there was that nobody else did it anyway. So this is how I got into the localization industry very early on. So it's a very common, the very common strategy for companies is to just follow the lead of their clients or the demand of their market or their location or whatever that is, and and then become specialists because of that. And the same goes for individual translators and for LSPs how, however, as you grow as you mature, the specialization might become your enemy. If you are for example, if you were in the beginning of this year, because of COVID on site interpretation company or a company focusing only on the travel industry, you would have been in trouble or you were in trouble if you're listening to this call. Why? Because you had all your eggs in one basket. So what some companies have done and I have worked as an executive at at Moravia, which is now part of our Ws and what more Abby did for their first 15 years they focused on it and big players like Microsoft and Google. But at one point, they made the strategic decision to go into the life sciences space. So over several years, the business grew to 8020 80% Localization 20% Life Sciences, but there was a strategic decision to go into a market invest money in developing knowledge and hiring people to work in that market market. Not everybody can afford that. So what I want to share with you now, is this this, what are the ways that you can specialize, right, and essentially, what you want, oops, too, you can find niches by industry by service type, as we saw, by language pairs, right? I can think of Sandberg, this company based in the UK, they focus on Nordic languages and translations into English. So these are two. They work with LSPs. In all spaces, they focus on language, there's more than specific areas, you can have a specialized on a business model, there are companies that specialize that have an in house translator model, that might be very interesting for companies that require a certain level of confidentiality or teamwork or the ability to work on remote servers for these large companies. And also, you can specialize in certain technologies, there are companies that's that are experts in a cross or a word server, or STM or Memsource. And that gives you a certain specialization to go into markets for clients that use that. At the end of the day. A niche strategy is a way for you to focus your efforts, you focus your budget, you focus your your time, your focus, your training, your focus, your technology, your terminology, everything on one of the areas that you choose to specialize if you're interpreting company, infrastructure, you need to buy telephone lines if you want to do over the phone interpretation. So the value of any strategy is to focus your efforts around something that generates better value for you. To conclude, what I want to say is that there is no right or wrong way to define any strategy. But what is important for you is to understand that bad news early is good news, you should be ready to walk away from a market, if it doesn't belong. I've seen companies trying very, very hard to sell into the gaming space. It's very hard to go into AAA gaming, because the competition is very well established. Go in, try get out soon, and be ready to change if you have to. And the final comment that I want to make when you want to define a strategy, start selling to people try to understand how they buy more important than anything, it doesn't matter what you know, and how what do you believe is right? Understand buyer behavior. I'm never tired of repeating this. Find out here are some questions that you need to ask yourself. But essentially, you need to understand how the client, what are the questions that the client is going to ask you to test your expertise and your knowledge and your availability and so on. For some clients is like I said, it could be a technology could be language bear, it doesn't need to be necessarily only a vertical way. Defining niches, you don't have to have only one, you can have multiple, it's a way for you to focus your effort. And with that, I want to thank you. And I want to I'll be more than happy to ask any questions if you have I don't know how I did on time. I tried to time it. Igor Afanasayev 19:12 i Yeah, we're on time. I think we have about 10 minutes. So while we're waiting for other questions, you're just perfectly on time. Renato Beninatto 19:22 I think I had I mean, South Pacific Time Zone. Yeah, so you got it. Igor Afanasayev 19:32 Okay. So, yeah, we have some questions, but before that, I just want to have my question first, if I may. So, how do you think the technology advancements nowadays are defining or shaping those niches? How can we catch those new trends and find them? Renato Beninatto 19:52 So there is a concept of first mover advantage right. So whenever New technologists show up. You want to the first movers, the ones that are early adopters have an advantage to position themselves right. One of the early presenters Diego freshly from Creative words, he positioned his company as post editing, machine translation, post editing, post editing organization. That was a niche that he figured. And there is another company in France, six continents, focusing on post editing and working with clients that need that kind of of service because there is a demand for that service. Right now. The companies that were ready to move into video remote interpreting Kudo interpret fi were much better positioned than companies that were waiting to see what the client was going to do. So some of these bets, tend to be timely, I like to, we named the follow very closely the interpretation space, and we write a lot about it. Our chief researcher is an interpreter. And we last year, we used to say that video remote interpreting was a solution in search of a problem. Well, guess what the problem showed up? So if you had asked me a year ago, should I invest? In video remote interpreting? I say no, there was no market for that the people are still resisting change. But all of a sudden, those who were ready, were in a perfect position to be to take a leadership position in that space. So there is an element of serendipity. Some an idea that was a bad idea. A year ago, two years ago, five years ago might be a very good idea now across the spectrum, not only in in the translation and localization space. Igor Afanasayev 22:11 Thank you. And our next question is actually kind of piggybacks on your answer. Alex, is asking which niche you wouldn't advise getting into right now. This is jumping in so most difficult or most challenging one I don't know about, like, what are the differences between difficult and challenging things? But what do you think we should not be getting into? Renato Beninatto 22:34 Well, it depends on what is your there is a short term strategy and a long term strategy. The easy answer is travel. Right? There's very little travel, and companies are disinvesting in travel. But you never know. The truth is that until you test, you never know what is what is going to happen and how it's going to work. So a few years ago, I would have said, travel is a great area, it's expanding. But then you have a company. And I don't know what it's doing. I'm just speculating here, for example, there were some there are some companies that had very, very, very large in house departments in the travel industry. They, they, they had several project managers. Look at companies like Airbnb, Uber, Expedia, kayak, they have to change their strategy, right. So if I say, using common sense, I wouldn't go into the travel industry. The other side of me would say, where is everybody running away from maybe there is an opening for me in that space. And I will prepare, put together an infrastructure, because this industry is going to come back and I'm ready to invest and bath and build relationships. And a year from now, two years from now, when the industry is back, I will be in a position to take advantage of that chain. So I know that this is a typical consultant. Answer. It depends, right? But the reality is that what defines you as an entrepreneur, is your ability to take risk, and to look at this challenges and try to go into areas that nobody else is going. So one way what I really recommend you to avoid is to go where everybody is going at the same time. I like to illustrate the example of Life Sciences 20 years ago when I was at Berlitz. Nobody talked about life sciences everybody talks about pharmaceutical or medical healthcare. And then Lionbridge went to the market saying that they had a new Life Sciences Division, within six months, everybody. Sciences and it became, it's a term that the stock exchange started using it's a category. So everybody changed their language to go into that space. Some other companies prefer to go over only clinical trials, we're only pharmaceutical. And those, there's no good and bad strategy is just a good or a bad experience that you have. Igor Afanasayev 25:29 Awesome, thank you so much. We have so many more questions to go. And we absolutely cannot answer them all. But before we do that, can I please ask you to stop sharing your screen because we want to see more of you and your lab background? Not the virtual background as mine. But a proper quality, live background. Okay. So the question that comes from Sultan, it's a short and sweet one. Where do you start with initial assessment? Renato Beninatto 25:56 Look, like I said, in my experience, where it's going to come from, right, you usually, in most cases, it's serendipitous, it's an opportunity. It's a client that calls you and you become an expert in that market totally by chance. But if I'm going to be deliberate to go into a certain niche market, I would use standard analytics, I would look at the five forces essentially, who are the key competitors in this space? What is the buyer dynamic? How do they buy? Who are the sellers? Who are the experts, the freelancers? Is there a pool of experts in this area that is willing to provide translations, what are the how hard and how easy it is for other competitors to come into this space? And finally, how ready is this industry for substitution? Right. So earlier in the discussion about education Max was was talking about subtitling. Subtitling is an area that is getting so automated, so easy to do, I started in the industry as a Subtitler. And it took me three days to subtitle a movie because I needed to do it on a typewriter I needed to count literally, the the characters, and now you can subtitle stuff in minutes, right. So that makes differentiation harder makes pricing lower. But again, your differentiation capability might be on pricing. I didn't even talk about the the niche being low price or high price. There are translators that focus on a very, very, they call themselves in the the premium translation market where there's strategies to charge 20 cents per word or more transcreation. It's a high high price space. So Sultan, it depends on where you are. Also. If you're in Canada, it might be hard to sell in China, but it might be easy to sell into the United States. So many, many things to take into consideration. It's a business decision. And again, I will go I would bias my bias would be towards doing my bias would be towards experimenting, rather than giving up without any attempt. Igor Afanasayev 28:49 Okay, thank you so much. I think we have time for one more question. I see this question coming in different words from a couple of people. So I will read the one that was provided by Pablo Berardo. His question is, is this so niche or not niche, how to specialize and not end up with all your eggs in one basket? Renato Beninatto 29:11 Yes. This is why I made it clear that I don't think you have to have one niche. And actually you can have a combination, any combination. The value of the niche is that you can have serious conversations when I remember. Many, many years ago, somebody came to me with a translation written by a Japanese scientist in English to be translated into Portuguese that was about high conductivity ceramics at the time. This was the first paper that was ever published about this. So there were there was no expert. And I said okay, my company is going to be an expert in ceramics. I found some physicists I found some people to help with the terminology. And we started going after the market. For that, guess what? There wasn't really a market at the time. So I would say, whatever your position is in the market, the the advantage of the niche, it's at, you create, there are there are communities around it. There are opportunities around it, there is a lingo, there is a spirit, a specific language that goes around that specific market, right. And if you are able to speak that language, you're part of the tribe, you're part of that group, and you can sell into that group and be respected and accepted into that. So to answer your question to niche or not to niche, niche and don't niche, balance your eggs, put your eggs in different baskets to use or expand expression, have a side of your business where you do generic translation, whatever comes and have a side of your business where you are the most famous person in that space. Tried to do that. Igor Afanasayev 30:58 Okay, thank you so much. I think we're out of time. And we had lots of questions. If you have more questions, I think everybody can go to our community and ask them we will try to follow them to Rinaldo so you can continue conversation somewhere there.