Selecting target verticals as a small business

by Lilia Shirman on April 2, 2009

in Entrepreneurship,Industry Specialization,Strategy and Planning

What advice would you give small companies trying to prioritize target industries?   Robbie Baxter of Peninsula Strategies, an expert in on-line, recurring revenue streams, asked me a this very interesting question!

At companies with a sales history, industry-specific activity and resources are focused in two kinds of areas:  Where most revenue is coming from already (this is by far the more common focus area), and where there is greatest opportunity for growth in the future.    There can be lots of complex analysis, but in reality few big companies do much proactive planning.  That’s a whole other blog, though.

With a smaller company, the first part of that equation is missing. They don’t have the sales history, references, and channels to naturally leverage into an already-active vertical market.

So, here is a try at some things I’d look at as a small business deciding where to focus.

1. What industry will value what you do most? Where will you impact mission-critical results?

2.  Over time, what group of customers are going to be needing you more and more (and feeling increasing pain you can solve) due to external pressures and trends in their industry?

3. Where are you best able to access the financial decision-makers? (This is a combination of your company’s existing connections and lists, and the target industry’s propensity for doing business with small companies.)

Note that its easier to find ways to reach financial decision-makers than to change the core value of what you do or convince an industry to focus on non-critical issues.  Unfortunately, many small companies start with #3 as the first, not last criteria for selecting target markets.

Please comment with your own thoughts on selecting target industries at small companies.

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  • http://www.peninsulastrategies.com Robbie Kellman Baxter

    Great article Lilia! You’re fast! I agree with what you said. Another question i think about is how many verticals to focus on, and whether it’s better to pick one with a few large prospects or one with lots of small ones…Peter Drucker would have said that transactions costs would be comparable so go for the consolidated one–on the other hand, big powerful partners can often drive small companies in the wrong direction…

    • lshirman

      More great questions, and points, Robbie. These issues really depend on the nature of what’s being sold – or more specifically, how customers buy it. If its a relatively simple, small purchase, then transaction costs are probably equal, or even lower with large companies, where mid-level managers have the autonomy to make “small” purchase decisions even more readily than their counterparts at small companies.
      On the other hand, if the buying process and product were complex, and the price point was high, then its a different story. If I had an offering that was equally critical to two industries, but one was very highly consolidated, like Telecom, and other was at the other end of the spectrum – say, Healthcare providers – I would go with the more fragmented target. At the risk of disagreeing with the likes of Peter Drucker, I think transaction costs are not comparable. Huge companies have longer sales cycles, more stakeholders involved in decisions, and, as you very accurately point out, can create undue demands on a small company.

      Re number of industries, the truth is, I’d be a bit opportunistic. Pick more than you think you can really focus on, and get started. Then see what sticks. I do wonder why they are thinking about targeting specifically based on verticals. … which gives me the idea for another blog! Thanks!

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