“How do we prioritize target industries?”  This question comes up often in my conversations with founders strapped for sales resources and under pressure to deliver a repeatable revenue stream.

At companies with a long sales history, industry-specific activity tends to be focused on two types of markets:  Where most revenue has come from in the past, and where there is greatest opportunity for growth in the future.  By far the most common is the former. Surprisingly few regularly do the analysis to identify the latter.

For earlier stage firms, the first part of the equation is missing: They don’t have a past.  There is no sales history, references, and channels to naturally leverage into an already-active vertical market.  So they default into whichever market their first opportunistic sales landed in, or where their current VP of Sales has the most connections. As a result, I see many start-ups struggling to deliver repeatable sales or accelerate growth.

Even without a sales history, savvy start-ups can look for other clues.

Three considerations when aiming your sales arrows:

1. Value: What industry will value what you do most? Where will you impact mission-critical results?

2. Pressure: Over time, what group of customers are going to be needing you more and more (and feeling increasing pain you can solve) due to external pressures and trends in their industry?

3. Access: Where are you best able to access the financial decision-makers? (This is a combination of your company’s existing connections and lists, and the target industry’s propensity for doing business with small companies.)

It’s easier to find ways to reach financial decision-makers than to change the core value of what you do (another words, pivot) or convince an industry to focus on non-critical issues (that hyper-expensive and often fruitless attempt to “educate the market”).  Unfortunately, many young companies start with #3 as the first, not last criteria for selecting target markets.

2 Responses

  1. Great article Lilia! You’re fast! I agree with what you said. Another question i think about is how many verticals to focus on, and whether it’s better to pick one with a few large prospects or one with lots of small ones…Peter Drucker would have said that transactions costs would be comparable so go for the consolidated one–on the other hand, big powerful partners can often drive small companies in the wrong direction…

    1. More great questions, and points, Robbie. These issues really depend on the nature of what’s being sold – or more specifically, how customers buy it. If its a relatively simple, small purchase, then transaction costs are probably equal, or even lower with large companies, where mid-level managers have the autonomy to make “small” purchase decisions even more readily than their counterparts at small companies.
      On the other hand, if the buying process and product were complex, and the price point was high, then its a different story. If I had an offering that was equally critical to two industries, but one was very highly consolidated, like Telecom, and other was at the other end of the spectrum – say, Healthcare providers – I would go with the more fragmented target. At the risk of disagreeing with the likes of Peter Drucker, I think transaction costs are not comparable. Huge companies have longer sales cycles, more stakeholders involved in decisions, and, as you very accurately point out, can create undue demands on a small company.

      Re number of industries, the truth is, I’d be a bit opportunistic. Pick more than you think you can really focus on, and get started. Then see what sticks. I do wonder why they are thinking about targeting specifically based on verticals. … which gives me the idea for another blog! Thanks!

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