In 2017, River Cities Capital Funds, a growth equity fund focused on healthcare and information technology, produced a study on software as a service (SaaS) companies. At the time, River Cities already had invested roughly $100 million in 16 SaaS companies, which had resulted in six successful liquidity events, including two IPOs.
The company’s research report, entitled “River Cities SaaS Operating Metrics & Valuation Benchmarking Study,” predicted that the impending second wave of the SaaS business services model would be characterized by “vertical solutions for niche markets with a services approach.” A key finding of the report states:
“Vertically-focused companies tend to see more efficient results than horizontally-focused companies. Horizontal players spend more, on average, to acquire $1 million of revenue or gross profit. Vertically-focused companies in the $15–$30 million revenue range see payback periods nearly 12 months shorter than their horizontal counterparts.”
Why specialize with industries?
The findings of the River Cities report have broader implications than just within the SaaS market. In fact, the benefits of focusing on a particular vertical or niche can apply to any number of industries including accounting, consulting, banking, and insurance.
While historically, the professionals within these industries have tended to be generalists, this “jack of all trades” operating style is becoming increasingly challenging and antiquated. Clients expect greater expertise in exchange for paying a premium for services or even investing their time and energy into meetings.
Truth be told, business owners will always favor people who have a comprehensive understanding of their industry and business’s unique innerworkings — both the pain points and the potential. This is why it is increasingly important for those in the highly competitive world of financial services to choose a handful of specific industry niches to study and gain in-depth knowledge, thus giving them the expertise to offer their clients tailored advice and solutions.
Which industries should I specialize in?
Not sure which niche or niches might be a good match for you? Here’s a quick quiz to help you narrow down the possibilities. Ask yourself (and/or your manager):
- Which industries are prevalent in my market area?
- Which industries meet my company’s standards?
- Which industries don’t already have intense competition?
- Which industries have a propensity for services that match my goals?
Once you answer these four questions, you’ll likely have a better handle on which industry verticals might be right for you to focus on.
Tips for industry specialization
If you’re still unsure which niches are the best fit for your company and your personal book of business, here are a few additional tips to help you make your selections and then make the most of your prospecting efforts.
- Choose two to five industries, depending on your time constraints.
- Get a list of the companies in your market area that fall into those industry verticals.
- Join local professional associations and get involved by volunteering for things nobody else wants to do.
- Once you have a few connections, cold calling works, but you’ll need eight to 12 touches.
- Most important, take advantage of the wealth of information available on the Vertical IQ Industry Profile for your chosen industries. Vertical IQ offers you easy access to comprehensive information on over 300 industries.
Finally, remember that you cannot find your market niche through research alone. Only through successful selling will your ideal vertical reveal itself. As Warren Barre, cofounder of Headhunter.net, said, “Money is the truth machine.”