Vertical Market Expansion – Should Be Well Thought Through?
By Lalit Dhingra, Founder & CEO EnSignis
It is a known fact that growth is core to the strategies of most CEOs or entrepreneurs. It is the only thing that challenges us and drives us the most. When we look for growth or new revenue and profits for our products or services – we are keen to evaluate new products, new service offerings, new geographic regions, new partnerships and new vertical markets.
Taking your existing service or product line into a new vertical market can be a viable path to increasing revenue and achieving the company growth objectives. Most of CEOs face various questions – Is this a right strategy? What is the main consideration while entering a new vertical? Will I need to alter my product or service offering for that vertical market.
In last 20 years, I had the opportunity to expand the IT services business for a global IT company, into three new vertical markets. I was not shy to seek help from large and smaller consulting companies. I was able to get help in getting my strategy and implementation plans vetted by experienced people.
Based on my listening Simon Sinek’s inspiring speeches and experience of expanding business to multiple vertical markets I would recommend that CEO’s must focus on the first of many questions – Why? Once there is clear answer on why expansion of business to a new vertical is clearly established – CEOs must focus on “What” part that means which offering/products to take to these markets and in the end think about the mechanics “How” to get into the market.
Why? – Expand into new vertical market
Expanding business into a new vertical is considered harder than starting a new business. The existing offerings and products have already established in the existing markets – the new markets may need fine-tuning of offerings and products. For public companies’ CEOs have to explain their strategy to their boards on why they think expanded into new vertical market is going to be successful, they must create clear implementation plans with investments.
As a CEO you need to answer the question Why? There can be multiple reasons for entering into a new vertical market
• Business needs expansion into new market as the current market for the business is drying out.
• Need quick revenue growth and expansion is opportunistic.
• Expanding the business into new vertical is a diversification strategy.
In my previous company, When I was expanding the existing business (IT solution) into Media Vertical, the decision to move in this market for me was only the revenue expansion. There were lot of lessons learned during the decision making. Once I decided to move into this new market, I had to justify time, resources and effort for the revenue I was going to generate.
CEOs must get the risk-reward analysis done before entering into the new vertical market. Some time we miss the obvious points like doing the deep market analysis. In today’s world with much of the data available through the research companies or free on the net, this is not hard to achieve.
Once there is clarity around “why” you are pursuing the strategy of expansion into new market, you will be able to determine whether there’s a good, quantifiable reason to justify the resources, time and effort involved.
What? – products and services
Are your current offerings and products being easily configurable to new vertical market? It is highly important to think about your company’s core competencies and expertise and whether the strategy to expand into a new vertical build from your core strengths. Each vertical business problems are different but may have solutions that can be solved using common product or technology. It is useful to look at what technologies are used in your current offerings that can be leveraged in the new market place.
Just to illustrate the point mentioned above, for a staffing company in IT space, their product/Offering is the skilled manpower and hence getting into different vertical market place is easy. On the other hand, for an IT solution company it is important to do the business and technical skill gap analysis for various vertical market segments.
For entering into a new vertical market, it’s of paramount importance to think about what most viable solution or offering is for the vertical that your company intend to serve. Is subset of your offering/product set make sense or you would like to enter this new vertical market with all your offerings. In case your product or service offerings need redevelopment/modification efforts, what will be the cost and time effort needed to be ready. You must clearly articulate the benefits or uniqueness of your offerings or products for that market.
How? Executing the Strategy
Once the Why and What part are clearly understood and articulated, how part is the mechanics to achieve results. Highly important is to create implementation plan from strategy and execute effectively. I had never shy away from using external help as there is no point in reinventing something that others have successfully done. I have used the experience of people in guiding me to create implementation plans for strategy of getting into newer verticals or new geographies.
The external help can help you in identifying the target customer or fine tuning your value proposition for the market. You need to clearly have the strategy of acquiring and then penetrating customers in the vertical market space. It’s like starting your company all over again for different set of customers. You may already have your sales strategy in place, that needs to be replicated or modified to suit the vertical market. Building brand awareness and credibility in the new market is highly important.
The most important thing in succeeding in business is to execute your go to market plan for the new market. Strategy document is a live document and it keeps refining once you start gathering real-world experience and customer feedback.
In my previous company as President/Regional CEO, it was key for me to visualize the future state of my business with all vertical expansions and clearly articulate the growth parameters. You must think strategy of starting new markets, geographies and products and paint a picture of future state of your business. As CEOs or entrepreneurs, some of you will find that this path aligns well with your aspirations and the passion you have for pursuing it. Some of you may find that it will be too much of a change. The key is knowing what’s right for your business and creating the strategy and executing with both utmost focus.