Let’s Get Vertical

I love to invest in companies that are developing broad horizontal technologies.  Many of them – such as NewsGatorFeedBurner, and Rally – can be applied to many different vertical markets. 

I personally revel in the tension between engineering, product marketing, and sales.  It’s challenging to sell a horizontal product in an emerging market, especially to enterprise buyers.  You need a special type of salesperson – one who doesn’t constantly say “I can’t sell that” but instead knows how to ask his early adopter customers “what is your pain around [problem category X]?” and then figures out how to repurpose the horizontal technology to solve this pain.

In a well functioning early stage team, this tension between engineering, product marketing, and sales results in customer driven vertical market segmentation.  Rather than having a top down sales effort to “go after the following five vertical markets”, the use cases evolve and the ripe vertical markets become clear.

NewsGator recently demonstrated this in the healthcare segment.  In their discussion of The Power of Enterprise 2.0 for Healthcare Delivery they talk about how The National Health Service of the United Kingdom’s Orkney division implemented NewsGator’s Enterprise Server and Traction TeamPage’s blog/wiki product to address their internal communication shortcomings.

As a result, NewsGator is now talking about other healthcare organizations (yeah – there are a few of them) that could use a comparable solution.  Suddenly, the sales organization at the horizontal technology supplier has a vertical market to focus on. 

Now, a traditional enterprise sales (or marketing) executive could say “of course you want to target health care organizations – that’s one of the biggest verticals around, after finance, insurance, manufacturing, government, … ” (you get the idea.) However, in advance of real customers, all the startup is doing is guessing at what people are going to do with the horizontal technology.  Imagine going to a typical health care organization and saying “would you like to buy some enterprise RSS.”  Not very effective.

I hate spending bucks early in the life of a company (and market) to try to create vertical market demand.  However, there comes a time when it becomes obvious you have enough customers in a market segment that you can start to get vertical with your selling efforts while continuing to extend your “horizontal platform technology” into new and exciting areas, such as NewsFriends for Facebook or a reader for the iPhone.

  • I can vouch for this situation. I think the more ways you can find for your horizontal technology to plug into verticals, the better.

    However, you cannot neglect your core competency. There also has to be a balance in how one manages their long term strategy and decides on current priorities.

  • Entrepreneur

    My question would be… when talking to VCs about the prospects of your “horizontal platform”… should you mention “vertical” opportunities? Would this make your case for funding stronger… or, instead, make you look unsure in the core business model?

  • CScott

    A salesperson that says “I can’t sell that” is not a salesperson, but rather an Account Manager. There is a difference between hunting and farming. Anymore, the ego of today’s sales rep is preventing them from keeping in mind that the customer will buy to solve pain and not because we are nice enough people. A great sales rep will have an idea what that pain is prior to walking through their doors and carefully walk the line between guiding them to the conclusion that their organization should be an early adopter and deciding upfront that the rep knows more about the customer’s business than the customer. Just one Sales Monkey’s opinon!

  • Like Brad I believe that platforms are where the highest magnitude of value creation takes place. But “verticalization” can help put context around the platform, and can help customers and sometimes investors visualize the value prop in the real world in real use cases. So articulating vertical opportunities to investors at an early stage is, IMO, a good thing…picking one and putting all your eggs in one basket without the right evidence isn’t…

  • Brad, I couldn’t agree with you more about market segmentation being driven by customers (“necessity is the mother of invention”). If you can’t customize your technology to address the customer’s pain because it’s outside of your “core competency,” then someone else will. I’ve found that no matter how thought out my vision for the future, the prospect in front of me today is often what shapes it the most.