Solution provider takeaway: Focusing on a vertical market or industry can be profitable for networking solution providers, but it takes substantial sales investment. Here are five things to remember about vertical market IT services
as you plan your vertical IT strategy.
There comes a time in virtually every successful horizontal technology solution provider's existence when focusing on a certain industry niche, or vertical market, could become a critical differentiator.
"A vertical focus is typically more profitable because the solution is repeatable and the
professional services skills are honed to the point that the inherent risk is greatly reduced,"
said Troy Webb, vice president and general manager of CompServ, a nationwide solution provider of data center infrastructure based in
Tampa, Fla. "The customers like the speed of delivery and the assured feeling that they are not the
first company to deploy a one-off solution from the VAR/solution provider."
But those technology solution providers that have made a vertical commitment -- or are in the process of doing so -- caution that creating your own vertical IT strategy is not a decision to be taken lightly.
That's because while going into vertical markets could help a VAR leave behind the world of one-off horizontal solutions, investing in an industry-specific business practice requires serious operational discipline. What's more, it requires a VAR's sales team to understand not just technology but also the role that technology can play in affecting processes specific to the target industry.
"If you don't have some level of experience in an industry, then you really have to question as to what you are stepping into," said Derek Downs, vice president of the VocalMash business unit at INX, a networking solution provider in Houston that focuses on unified communications and collaboration solutions.
Still interested in taking the plunge? Here are five ways to get your vertical market IT services practice launched:
1. Understand your existing industry exposure
Most solution providers already have higher concentrations in certain industry segments, thanks either to their vendor relationships or contacts cultivated by their sales team. The trick is to know in which verticals your company might have the most exposure, as well as whether or not it is lucrative to concentrate on that segment.
"As your business evolves, you pick up key markets that seem to resonate and self-select," said Stephen Brown, vice president of sales and business development for Bluehawk Networks, an IT infrastructure and managed services company in Campbell, Calif.
Bob Olwig, vice president of business development for network integrator World Wide Technology in St. Louis, said that three years ago, the company determined it was doing a substantial portion of its business within healthcare accounts.
"We discovered that we were helping many healthcare accounts build out their wireless and unified communication infrastructure," Olwig said. "We realized that these solutions were similar in scope and that we could benefit by packaging them into offerings that our sales team could better understand and sell."
2. Pick a vertical with legs
Just because you have a lot of customers clustered within a particular industry, however, doesn't always mean that you should invest in a focused practice. Your team needs to study the long-term prospects for a given vertical, looking out at least 10 years if possible, according to CompServ's Webb.
For example, one reason that the healthcare sector is so compelling to so many different technology solution providers is that long-term U.S. demographics point to demonstrable growth in the number of care providers, along with a profound need to improve efficiency at the point of care.
Another key indicator is whether or not a particular industry is heavily regulated, which can often inspire technology investments along with plenty of new products for technology solution providers to evangelize, Webb said. The need to ensure compliance around those regulations could help shore up your company's professional services margin, he added.
One developing vertical market mentioned by more than one solution provider was energy, which has benefitted from federal research and development funds as well as the American Recovery and Reinvestment Act.
3. Dedicate resources and make a cultural commitment
INX VocalMash's Downs said that some technology solution providers make the mistake of trying to recast their entire company to embrace a certain vertical, when that focus may be appropriate for only a particular region or particular office location. A key factor here is operational excellence and whether or not the sales and delivery process of a VAR's business is set up to handle everything from sales prospecting to implementation and service delivery.
"First look at your strengths and then even the strengths of your people. They actually may be from a certain industry or vertical," Downs said. "Look at them collectively."
World Wide Technology's first step when formalizing its healthcare focus was to allocate a business developer who was responsible for marshalling the company's expertise, creating a virtual sales team, developing marketing collateral, collaborating with World Wide Technology's vendor and OEM partners, and facilitating industry-related training.
"The application of technology in solving business problems is the holy grail for VARs and the systems integration community," Olwig said. "However, you can't solve problems that you don't understand."
4. Network within your chosen vertical
You'll need to build focused marketing expertise if you hope to be taken seriously within a particular vertical, according to Brian Okun, regional sales manager for Prevalent Networks, a security and risk management solution provider with headquarters in Warren, N.J.
That includes developing separate collateral, advertising with professional associations related to that industry, providing your sales and services team with skills development related to industry-specific challenges, and developing customer advisory councils that will help inform the unique needs of each vertical practice.
Your company should also be visible at key industry events, not just those focused on technology concerns, and should seek to contribute to articles being developed for industry-focused publications. "You have to become known as part of that vertical. Period," Okun said.
5. Give it time
Bluehawk Networks' Brown said that in order to make an impact on a vertical, you need to stick with it long enough to build credible reference accounts.
"A lot of entrepreneurs will say they're focused on a specific community," he said. "That works, but you really have to go after it. You really have to reposition and repackage.... This happens over time."
While there is no magic formula, Downs suggests that if a solution provider doesn't have the willpower or resources to commit at least one year to a particular vertical, then it shouldn't bother. "You need to use the same mentality as an entrepreneurial startup," he said. "You're not going to be able to flip a switch."
About the author
Heather Clancy is an award-winning business journalist with a passion for emerging technology and corporate sustainability issues. She can be reached at firstname.lastname@example.org.
This was first published in September 2010