What vertical markets are you missing?
A Step-by-Step Guide to Finding New Markets
How to grow and scale your company’s business
It doesn’t matter if your business is in survival mode or in aggressive growth — you always need to think about how to expand and grow into new vertical markets.
It is true for startups, medium-sized companies, and big corporates altogether.
This is a very practical guide, with dashboards, questionaries and ideas helping you to come up with a solid strategy on how to grow and scale your existing business
When I was assigned to lead the task force responsible for finding new vertical markets, the first thing I did was to think about the process. The Internet is full of different guides, but I wanted a simpler, solid, and faster process.
The 30-step guide didn’t sound right to me, so I was thinking about a different approach…
One day a mathematician decides that he is sick of math. So, he walks down to the fire department and announces that he wants to become a fireman.
The fire chief says, “Well, you look like a good guy. I’d be glad to hire you, but first I have to give you a little test.”
The fire chief takes the mathematician to the alley behind the fire department which contains a dumpster, a spigot, and a hose. The chief then says, “OK, you’re walking in the alley and you see the dumpster here is on fire. What do you do?”
The mathematician replies, “Well, I hook up the hose to the spigot, turn the water on, and put out the fire.”
The chief says, “That’s great… perfect. Now I have to ask you just one more question. What do you do if you’re walking down the alley and you see the dumpster is not on fire?”
The mathematician puzzles over the question for a while and he finally says, “I light the dumpster on fire.”
The chief yells, “What? That’s horrible! Why would you light the dumpster on fire?”
The mathematician replies, “Well, that way I reduce the problem to one I’ve already solved.”
Define a Growth Search Process
Let’s be a mathematician for a moment. Break this complex task into small pieces that we know how to handle:
- Understand in which use cases the product is being really used— Interview technical customer-facing coworkers to understand in which use cases the product is being actually used, not designed to be used. In other words, research all existing use cases and success stories in which customers decided to use your product. Look at that from the customers’ perspective, which industry they are coming from? What vertical markets do they represent?
- Understand in which verticals you already have a proven product-market fit — from those interviews, try to understand where the product was used ‘as-designed’ and in which the customer asked for adaptations or improvements. Understand whether it is a single success story or something that is representative
- Chose the right markets to focus on— understand how big these vertical markets are, whether you solve a critical problem and there is money out there. You’ll do it by analyzing the deals that the company already closed and estimating the key market parameters
- Execute— identify the right go-to-market, update the marketing plan and align the company around these new vertical markets
You can also use this approach to make sure that the verticals you are already addressing are the right ones. Run a sanity check according to the key market parameters that I define in the ‘Is there a market’s section.
Most of the information you need to gather is in your company and already available. You’ll need to speak to the right people, ask the right questions, and follow the method.
Last but not least. I will assume that the resources of the company are limited. In particular R&D and product, and therefore the optimal solution will be to avoid significant changes to the product. It will also enable you to show quick results. And who doesn’t like quick wins?
Understand in Which Use Cases the Product is REALLY Being Used
This is the first step. And I emphasize the REALLY thing.
The goal is to understand where your product is used today, besides the initial use case that it was designed for. Talk to technical, customer-facing people: Presale/SE/Customer Success
These guys are more focused on the technical aspects of the customer and probably can provide you with the best answers about how the product is actually being used.
The following questions can help:
- What are other use cases that our existing product is being used for, besides the use cases it was originally designed for?
- Who these customers are?
- What our product enables them to achieve?
- Is it a single example or we have a number of similar customers?
- What are other use cases that customers wanted to use our existing product for, besides the use cases it was originally designed for, BUT it didn’t work?
- Who these customers are?
- What did they want to achieve?
- What features were missing in our solution?
Find Product-Market Fit
Based on the answers, you’ll find several categories.
The existing product that was designed to be used in X, apparently used in Y!. Customers A and B tried that, it worked and they are even open to share a success story! In other words, there is a product and there is a fit. Now, we need to make sure that there is a market. We’ll see how it works in the next section.
Probably, these customers use the product in the way it was designed, but it can be in a totally different industry, different go-to-market, with different partners, and even different willingness to pay.
These are short term opportunities. All the hard work had been done — the product had been developed, tested, and deployed by the customer. No R&D effort. This is a perfect low hanging fruit opportunity. A quick win!
The second possibility is that customer A tried your product, it worked for a certain degree but there were missing some capabilities/features. The product-market fit is not there yet, but it worth checking out, again, if there is a market. Think about it for a moment, without any significant sales or marketing efforts, this customer reached out to you and tested your product. Isn’t it something worth investigating?
This is the dashboard you’ll end up with:
Is There a Market?
In this case, there are 3 simple questions that I ask when checking whether there is a potential market:
- Sizable market — make sure that there is a big total addressable market. At this point, you’ll need to research and dig into these new verticals. Talk to the salespeople to assess what was a typical project/deal size ($$$). Then, try to estimate how scalable this use case is, by estimating the potential number of such projects. For example, if the new use case is a deployment in a college campus (instead of a hospital), and the project size is $54K, and there are 5,300 colleges and schools in the US, the target addressable market is $286M. Also, worth checking whether you can/want to scale globally.
- Solve a critical problem — there is a sense of urgency. The product solves an important pain point. At the top of the list of the issues that the customer is dealing with.
- High willingness to pay — the customers are willing to pay for your solution, for the features, for the licenses. In other words, those who used it, understand the value you bring, and are willing to pay for it.
Another thing you can do is to understand the breakdown of these projects. For example, in the school project, you provide the software to manage the inventory (laptops, pads, projectors etc.). Try to understand whether you provide an end-to-end solution. If not, then who else is involved? What are the additional solution components, including services, licenses, accessories, etc.? This is the path for horizontal and vertical integration and growth inside these new vertical markets.
You may wonder what about competition, alternatives, barriers of entry, etc.? These are valid questions. However, in my opinion, they are less relevant in the case we are discussing here. The customer was a proactive one, he is already engaged, he deployed your product.
Chose the Right Markets to Focus On
This is the dashboard that you should end up with:
It is very clear where you need to focus your efforts!
Summary
- Look where your product is being used besides the use case it was designed for
- Understand these success stories and verify the market key parameters: big enough, serve a critical problem, there is enough money
- This approach is also good to verify whether your existing markets worth serving
- Analyze the deal size and the breakdown to understand where to grow within vertical markets
- It should be a constant process in all-size companies, including startups
Feel free to reach out to me on LinkedIn: linkedin.com/in/borismay
