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Today’s buyers, each retail consumers and businesses, demand more from the corporations they buy from. They want products made specifically for them by experts who understand their needs. In business-to-business relations, we call this verticalization. This is an extremely common trend in software.
Research conducted by Boston Consulting Group shows that 76% of software buyers consider it necessary to work with sales teams and executives who truly understand their industry, and over two-thirds value “industry-specific solutions.”
Investors like it Bain’s capital ventures (BCV) admit that the concept of vertical software as a service (Vertical SaaS) is quite recent, and for good reason. According to BCV reports, the issue of depth and breadth may divide investors. After all, why would a software company voluntarily determine to limit its total addressable market (TAM) in favor of a specific industry?
When my co-founder Amir and I founded Duda over a decade ago, verticalization was not yet such a hot topic and investors were much more skeptical than they are today. The focus on depth is controversial now, but it was incredible at the time. But as our product evolved and our company began to grow, it eventually became clear that this was what we needed to do.
Serving everyone served no one
Our first TAM was principally anyone who wanted to make use of our product. This meant that as website developers we were attracting quite a big selection of skillsets to our platform – from small business owners to fully-fledged skilled website designers.
Creating a platform that will appeal to each audiences quickly became a real challenge. For example, someone who desires to build a easy menu website for their coffee cart will expect a easy, easy-to-use interface. On the other hand, a digital marketing agency would require more robust and sophisticated tools with a high degree of customization. These two people are completely at odds with each other.
Trying to balance and build a tool that was easy enough for a small business owner, yet sophisticated enough for a skilled, proved to be extremely demanding – or even perhaps inconceivable, especially for a small team of engineers.
At first it wasn’t a big deal. It made sense to grow quickly, and our initial product, a website builder specifically for mobile web sites, was very talked-about. But as the web evolved, so did our business – so we needed to adapt.
Businesses have moved from having a desktop website and a mobile website to having responsive web sites that are adapted to each platforms. Websites have turn into more complex and their designs more complicated. While our platform has turn into more powerful, our focus has turn into less clear and our competition has turn into more fierce.
This combination not only pulled our product in too many directions, but also put us in competition with much larger players in the web development market. We needed to focus and diversify.
Verticalization gave us transparency
The decision to verticalize our platform was not an easy alternative by any means. At the time, about half of our clients were small business owners. How could we justify giving up half of our customers?
In our case, the decision was made each based on our customer data and the mood of our team.
Our own data shows that specialists and agencies are growing much faster in comparison with small corporations. Additionally, when we looked outside, we saw that the market was painfully undervaluing this segment. Our engineering team also preferred to create more sophisticated tools for more sophisticated users.
With the data on our side and the team behind this decision, we decided to narrow down our focus. Thanks to this, every aspect of the company’s operations has turn into exceptionally transparent. Suddenly, the sales team knew exactly who their customers were. Marketing knew who to confer with, which publications to work with, and which influencers to work with. Engineers knew who to create solutions for and which features to prioritize. The list goes on.
Here’s a good example. We couldn’t use the phrase “responsive design” in our marketing before we narrowed down the market; as a substitute we needed to say “works on desktop, tablet and mobile”. It was a clumsy phrase, but after verticalization we were capable of start using specific, technical terms like “responsive” in our marketing.
Your platform may verticalize
The story we tell is a story that many corporations can discover with. When we decided to focus on professionals, we never spent one other dollar on a small business acquisition. To this present day, our text is aimed specifically at website professionals and SaaS corporations – individuals who create or offer web sites to others.
This transparency inspired every feature that followed and helped bring the company to where it is today, with over 23,000 customers and one million sites published on the platform.
To make the same change, it’s worthwhile to ask the same query we do: Who are your best customers? This is a never-ending query that we keep asking ourselves. Once we decided that our clients were networking professionals, the obvious follow-up query was: What kind? Freelancers? Marketing agencies?
Once you discover your customer, it’s worthwhile to dig deeper. What are their characteristics? What do they like about your product and what stops them? How to get more such customers?
Verticalization involves continually double-clicking on customers, immersing themselves deeper and deeper into their world until the product fully meets their needs. It’s also about ensuring that these needs align with your organization’s DNA. When the pieces align, the effort is price it.