The Resilience of Vertical Software
Value propositions that enable vertical software businesses to thrive in difficult economic environments
Many software businesses today are facing macroeconomic headwinds, which have resulted in tightened customer budgets, elongated sales cycles, and general skepticism toward purchasing new software. Customers who are in the market for new software solutions have significantly shifted their filters from looking at shiny “nice-to-have” tools toward evaluating ROI-driven “need-to-have” tools. While this new customer lens creates a more difficult environment for selling software, one category of software has proven to be highly resilient in tougher markets: vertical software.
Vertical software, or software that is specifically built for a particular industry (some examples from the Reformation portfolio include software for Retail Brands, Senior Communities, or Funeral Homes), has demonstrated an ability to perform well during tough market environments. This is due to a handful of commonalities in value proposition that enables vertical software companies — and specifically their sales teams (or the founder who is leading sales) — to effectively position their solutions in the “ROI-driven, need-to-have” category.
Value Prop #1: “We offer a solution that is tailored for your industry-specific challenges”
Vertical software is purpose-built to cater to the unique requirements of specific industries. Whether the industry is healthcare, finance, manufacturing, or any other sector, vertical software is designed to address the precise challenges faced by businesses in that industry, and in many cases even sub-sectors of that industry (e.g. a specific type of manufacturing, or a specific group within the healthcare system). This specialization enables the customer to leverage the preexisting features and functionalities of the software (which cater to their specific needs and workflows) instead of having to spend the time, brainpower, and other resources adapting a horizontal application to fit their needs. As a result, it is easier for the customer to get internal buy-in as the solution should work out of the box, be cost-effective to implement, and begin to drive impact immediately.
Example: Endear provides clienteling software for omni-channel retail brands. They target a specific customer (omni-channel retail brands) that have specific challenges (driving more sales and foot traffic to stores). Endear’s solution is purpose-built to solve these specific challenges for these specific customers, so their software works right out of the gate without any major setup required, and seamlessly integrates with any other key piece of software that the customer uses (e.g. POS system, email marketing system, etc.).
Value Prop #2: “Our software streamlines your operations and drives efficiency (profitability)”
Tough macro environments require businesses to optimize their operations and improve processes to remain competitive. Vertical software plays a crucial role in this regard, providing tools that streamline workflows specific to a given industry. By purchasing software that automates many of the manual and redundant tasks, customers can enhance their company’s productivity (increasing top-line), reduce costs (increasing bottom-line), and improve overall efficiency (increasing bottom-line). As a result, vertical software can generally check the box as a “cost-savings” solution for a customer, while in many cases also being an additional “revenue driver”, demonstrating a clear ROI for the purchaser.
Example: During tough economic environments, retail brands are often impacted by a decrease in consumer discretionary spend. This can hurt retail brands in two ways: revenue drops as sales decrease, and the fixed costs of stores and store associates become less efficient as fewer customers visit stores. With Endear, retail sales associates are armed with CRM and clienteling software in-store, enabling them to chat with and sell directly to customers anywhere. This both increases top-line and improves efficiency of the stores and the retail associates, thereby improving the bottom line.
Value Prop #3: “We enable your employees to make data-driven decisions”
In challenging macro environments, data becomes a valuable asset for decision-making as every manager requires decisions be supported by evidence that is tied to bottom-line improvement. Many vertical software solutions provide businesses with robust analytics and reporting capabilities tailored specifically to metrics that are relevant for the given industry. By purchasing software that aggregates data and leverages analytics, customers can gain valuable insights (that they most likely did not have previously) into market trends, customer behaviors, and operational performance. These insights in-turn allow their employees to make decisions backed by data that help them identify new opportunities, mitigate risks, and devise effective strategies to navigate through tough macro environments successfully.
Example: During a downturn, retail sales associates feel increasing pressure to drive more sales. This naturally leads to increased clienteling, where sales associates will begin to more frequently text their top customers to come in-store and check out the latest items that have arrived. Though the practice is proven to work, clienteling has long been operated using physical lists (pen and paper) or digital lists (the sales associates’ individual phone books), with no real understanding of which customers are best to contact and what is the optimal message to send. Endear’s software solves each of these issues with data: they help associates who are not tech-savvy seamlessly create a list of high-intent contacts (e.g. “customers who have purchased within the past 90 days”) and craft the best-performing message based upon their shopping history (e.g. “I know you purchased our plaid shirt in a size Medium. We just had more arrive in several colorways that I think you’d like”). These data-driven messages drive trackable, high-ROI outcomes for brands.
Value Prop #4: “We help you build stronger customer relationships and increase loyalty”
Maintaining strong customer relationships becomes even more critical during challenging times. As the cost of acquiring a new customer increases during a downturn, the relative value of driving an existing customer to repeat purchase becomes even greater. Vertical software often includes a CRM tailored for a specific industry that includes fields and workflows that would otherwise be left out of horizontal, general-purpose CRMs. A potential customer may already have a CRM in place or might be digitizing their CRM for the first time (depending on the demographics of the industry, many industries are still operating in spreadsheets and email, or perhaps even pen and paper). In either case, the CRM will help the customer personalize interactions, manage their customer inquiries, track sales pipelines, and deliver targeted marketing campaigns (among many other applications). These capabilities are becoming table stakes for every industry, and they help foster customer loyalty, increase customer satisfaction, and improve customer retention and expansion, all of which are critical elements for success in down markets.
Example: As discussed in the previous example, Endear often helps retail brands replace pen + paper or spreadsheets + email with a digital, cloud-based CRM. Brands can then use applications on top of the CRM, such as Endear’s clienteling tool, to help build personalized, meaningful relationships with customers in a scalable manner. During tough economic environments, retail brands become even more dependent on their existing customers to help keep sales elevated, so the value of a CRM is magnified as brands strive to build strong customer relationships.
Overall, vertical software has proven to be resilient in tough macro environments as it has proven to offer several value propositions that contribute to their customers’ bottom-line performance and, in some cases, survival during tough times. It’s important for vertical software solutions to hone in on the key value propositions above that are applicable because these value props are “ROI-driven” and will resonate with customers even if they are on a tight budget. As industries continue to navigate the challenging economic landscape of the moment, vertical software is set to play an increasingly vital role in helping organizations across industries overcome their challenges, improve efficiencies, and achieve sustainable growth.
