Whenever I meet with a VC firm, one of the first topics they address is, “What is the potential market opportunity? How big is this market size?” This takes us down the inevitable rabbit hole of specialization versus generalization. Do we focus on a single vertical, or do we create a general product that can be applied to multiple verticals?
Some VC firms love focusing on one vertical – they want your startup to understand and secure a single vertical, declining potential business from outside verticals. Other VC firms think that a single-vertical focus is too narrow, and your SaaS startup must confirm other use cases to truly prove the business model.
So which is right: specialize or generalize? My answer is both: specialize for sales and marketing, and generalize your product.
Specialize for sales and marketing
Specializing in one vertical allows you to focus your messaging and efforts on one industry. Most startups lack funding to dedicate toward full-scale sales and marketing resources. By specializing in one vertical, you get the most bang for your buck in an area of limited resources. Your pitch and collateral is refined and tailored to that specific industry; therefore, you speak the same vernacular as your prospects, and this boosts your credibility as a knowledgeable leader in the industry.
Because you are an expert on your industry, you can highlight the direct benefits of your product rather than generic features. Suddenly, your sale becomes easier. Prospects can envision how your startup can increase their ROI and directly affect their business process.
As your sales progress, signed charter customers will increase your visibility within the designated vertical. When prospects in your target industry notice competitors using your software, they will have increased confidence in your product (and perhaps a competitive nature will spur their interest). Ultimately, with these combined advantages, you shorten your sales cycle.
Generalize your product for different verticals
Although specializing in one vertical is efficient for sales and marketing, you should create your product so that it is capable of crossing verticals.
Usually, an individual vertical is too small of a focus for a large business. If you plan on launching a startup that will grow to be a massive business (and one that grabs the attention of premier VC firms), the market size isn’t large enough in one field.
Additionally, potential opportunities may offer low-hanging fruit in a different vertical. Do not shun this new business – you are a startup! You need business, customers, and, most importantly, revenue. Just because a business does not fall inside your predesignated specialty does not mean you should turn it down. Take this opportunity to examine if a different vertical may be a good or better fit for your business.
Lastly, your initial hypothesis could be wrong. Maybe you thought that the legal industry could really benefit from your software, but it turns out that the barriers to entry are too high. Perhaps you thought the consulting industry would be a good fit, but the market is already saturated with sticky competitors. Your initial theory about your software might be incorrect. And if you haven’t designed your software to be adaptable, you’re in dire straits.
Selectively expand into new verticals over time
Over time, your sales and marketing for an industry can be put in auto-drive. Once you reach this, you have the resources and ability to choose your next vertical. And because you have designed your software to be flexible, you can restart the cycle.
Guest author Paul Everton is the CEO and cofounder of Yapmo. Recently honored as a top innovator at the Chicago Innovation Awards for its creation, Mr. Everton has over 16 years of experience in information technology, programming techniques, network and infrastructure design, IT sales, and business development. Mr. Everton has developed complex network architecture designs for Fortune 100 clients while working for a number of high-tech companies. He began his career designing security infrastructures for the some of the nation’s most secure organizations.