Companies often mistake vertical markets as good strategy
I once joined the executive team of a well-known technology company who was undergoing a massive change. New ownership, leadership, vision and mission, branding and a renewed sense of excitement among the employees, which had been missing for many years.
Before my first day I was told they had made great strides in crafting a new product strategy. I was sent one of the most comprehensive PowerPoint decks I had ever seen: 80+ slides with wall-to-wall text at average 9-point font. It contained a detailed breakdown of every single product, line extension and feature that was required for what they identified as their top nine vertical markets. It contained cost and timeline estimates, revenue and margin forecasts, profit pools and gap analyses.
It was, in a sense, a management consultant’s dream.
My first thought when I saw it: “Oh boy, we’re in big trouble.”
As I learned during my first few months there … I was right.
The product roadmap was unlike anything I had ever seen. It contained literally thousands of entries, everything from entirely new products to relatively minor feature enhancements and variations of existing products.
It was a mess. As I dug into it further, I found that virtually every item on that list was the result of a request from someone – usually an individual customer, channel partner or salesperson. They had a highly specific situation they needed to solve, and every request was translated literally into a new product development project.
Product management had virtually zero basis for prioritizing these requests because they all fit within the vertical-market strategy that had been developed by the management consultant. Engineering estimated that completing everything on the list would take somewhere between 10 and 15 years, and that assumed an extensive expansion of resources and investment.
It was paralyzing, and as you would expect it resulted in almost nothing getting finished to anyone’s satisfaction. Everyone was unhappy – customers, partners, sales, leadership. The vertical market “strategy” was leading the business down a dangerous path.
Customer Segmentation
Vertical markets can play a key role in your go to market activities, but they should not form the basis of your overall strategy. The problem? Even within a single vertical market you will likely encounter multiple different customer segments, with different problems, needs and willingness to pay.
Let’s look at a common security industry example – the banking and financial vertical market. At one end of the spectrum, you have large office buildings with hundreds or thousands of corporate employees, closed to the public with relatively few visitors and containing standard property and equipment inside.
On the other end, you have small retail branch offices with just a few employees, open to the public and containing very high value assets.
Both customer personas are technically in the banking and financial vertical, but they obviously have very different needs and challenges. In fact, from a security standpoint you may say that retail bank branches have much more similarity to jewelry stores or car dealerships, and bank corporate offices share characteristics of traditional commercial or enterprise office buildings.
If you strategically limit your focus to the banking and financial vertical, you still must develop solutions for multiple customer types (commercial and retail) and you limit your ability to access other verticals that have the same problems and need the same solutions (jewelry stores and car dealerships).This same phenomenon happens in many different vertical markets, and companies often mistake verticals for customer segments.
Creating products and services for individual vertical markets does not focus your product development efforts any more efficiently and can restrict your potential market reach.
Instead, look for customer types across multiple verticals – customer segments – that share similar challenges, needs and willingness to pay, and develop solutions specifically to address one or two of those groups. This will focus your development efforts and enable you to access a much larger potential market.
Our Solution
Remember the company I described earlier – the one with the spaghetti-mess of a product roadmap? We fixed the problem and untangled the web by identifying a limited set of target customer segments – only TWO to be exact (actually we identified six customer segments, but we elected to focus heavily on two of them).
These segments crossed multiple vertical markets but allowed us to clearly focus our product development and go to market efforts much more narrowly. We simplified our product portfolio, eliminated a large portion of the individual feature requests, reduced our development costs and time to market, and ultimately expanded our addressable market.
And guess what? That company was soon acquired at a massive premium.
Good strategy works.
Want to lead your company to breakthrough growth and profitability? Head to https://securebi.com or contact me at [email protected] to learn how.