3 Ingredients Necessary for Vertical Market Success

I recently attended a pitch competition. Two of the entrepreneurs were building companies selling into vertical markets. The first entrepreneur started his presentation with his industry experience. The second didn't. In fact, I felt like he was avoiding it. I thought to myself, "If he would just establish his relevant experience right up front, then everything he is about to say will be believable."

Vertical markets are unique. I started my career selling to CPAs. I worked in a CPA firm before joining my CPA partner in the software business. We were fortunate to work with IBM in delivering first-time automation to CPA offices nationwide.

IBM, as big as they were, needed us. We understood the market. They understood computers and operating systems. They had a big salesforce who wanted to close deals. We needed a big salesforce. We both did well. It was a blast.

Back then, I didn't realize why we were successful in the CPA vertical. I thought it was our product. But once I began selling in a different vertical, I learned quickly what I had in the CPA market but didn't have in telecom.

I was just a few minutes into my pitch when one of the telecom executives stopped me. He said, "You never worked in telecom, did you?"

This question put me immediately on the defensive. I know because I said something like, "We are talking software here, and I've been in the software business for over fifteen years."

Sounds defensive to you, too. Right?

When he asked this question, I knew right then the meeting was over. I thought, "Go back to the airport and fly back to Atlanta. No sale."

My confidence was shaken. I kept asking myself, "How do I sell to telecom execs with no telecom industry experience?"

In 1992, I left my last operating role and became an investor. Since then I invested in several vertical market companies. The companies that were successful were led by people who embodied three key ingredients.

Vertical Experience

They worked in the vertical for a long time, most of them for over ten years. They developed a personal reputation in their vertical. Their network was a vertical-centric network. They knew the people who knew the people.

When they started their company, they knew who to call and what to say. They understood the problems facing their market first-hand. In fact, this is where the idea for the business germinated.

My partner, the real founder of our business, wrote what I learned later was the first time and billing system for CPAs. He did it in his free time while working for his firm. He sacrificed time from his family. He built a solution that solved the problem of billings, partner and staff evaluation, and client profitability.

His firm's partners loved it.

He asked them to pay him straight time and the expenses he incurred in building the system. They said, "You worked for us when you wrote this, so it is ours for free." He quit and started a software company. It was shortly after this that we found each other and I joined him.

We knew CPAs. We talked their language and understood their problems first-hand. We walked a mile in their shoes, and this gave us instant credibility with them.

But we also looked like them.

Vertical Culture

Every vertical has its own culture. The auto industry is different than the computer industry. They are both manufacturers, but that's where it ends.

They talk differently. They plan differently. They budget differently. They sell differently. They build partnerships differently. They use different service providers. They buy differently. They even dress differently. This is the secret sauce on how every vertical does business.

And the only way to know the secret sauce is to be one of them. For those of us who worked in a vertical for a long time, it is an unconscious knowledge. You don't even think about it. You are just one of them.

You know the inner workings of the industry. And you know how it works in your DNA, not just intellectually. You prove it with stories. And these stories are right on point and contain the names of people they know and respect.

I remember watching my co-founder pitch CPA partners. As part of his pitch, he would say, "And I call this report the fist-fight report. It shows each partner in your firm, his billable time, billings, and collections." He would then talk about how this report was worth the price of the entire purchase. He claimed it would make them a more profitable business through mutual accountability.

I would see the fear in the CPA partners' eyes when he showed them this report. Data trumps a convincing argument and likable personality.

But even this isn't enough, you have to love them, too.

Vertical Loyalty

Loyalty to an industry takes time.

We went to every CPA conference. We were there. In the beginning with our little 8x10 booth. Our cheap backdrop with some pictures and words we hoped would capture the attendees' attention.

We also helped the conference organizers get great CPA speakers and experts for their conferences. They liked our help and knew we wanted them and the industry to get better and succeed. We were in it with them.

They saw value in the network we developed though our sales activities. And they began talking about us when computing and software was discussed. They eventually started to select us to lead panel discussions and give presentations on automation. When the association put us in front of their members, this was the ultimate endorsement.

In short, the vertical market members want to know you are investing in them. You are not there just to feed off them. They have to see you and believe you are in the industry fight together because we all unconsciously know that people who are in a battle together have a common enemy and look after each others' welfare.

This is vertical loyalty.

Vertical Success

At the end of the pitch presentations I attended, there was a cocktail party. This gave the entrepreneurs and investors an opportunity to get to know each other better. It was also an opportunity for me to ask that entrepreneur who seemed to hide his lack of industry experience about how he he would overcome this deficit.

We talked about the three ingredients necessary to be successful in this new vertical for his company. That's when he said, "I guess you are right. I should be dressed more like you than the way I'm dressed." Compliment? I think not. I guess I don't dress like a tech investor. I need to change that!

Seriously, you do need these three ingredients to be successful in a vertical market. And you either already have the ingredients, or you can acquire them over time by investing in your market. But remember, time is money. So make sure you have enough money to acquire these three ingredients.