Verticalization 101

Investigating the who, what, when, where, why and how?

Verticalization 101

Every business-to-business product or services company must eventually tackle this question: Should we ‘verticalize’ our salesforce and go-to-market? I’ve spent the past 15 years helping startups and established high-tech companies like Cognos, IBM and Qliktackle this challenge. This blog is the first of a 3-part series where I’ll cover what it is and why do it. The subsequent blogs will focus on when, where, who, and how.

WHAT is ‘verticalization’?

Don’t Google it since you likely won’t find the answer. Simply put, verticalization refers to a company’s strategy to specialize how it sells and markets by industry vertical or function. A few examples of ‘industry verticals’ include banking, telecommunications, government and automotive. By ‘function,’ I’m referring to horizontal line of business areas which applies to multiple industries such as human resources, supply chain, finance, and marketing.

Think of a massive Rubik’s cube with each size representing industries, functions, channels, regions, etc. Each square on the cube represents a different way to pivot the go-to-market. Things can quickly get complicated when you consider the countless available combinations as depicted in the following image:

The alternative and more common approach to industry vertical or functional go-to-market is using a geographical based model where sales and marketing are focused on a regional territory separated by geographical boundaries. In an industry vertical or function focused go-to-market, the geography isn’t as important but the specialization and focus is what matters most.

What are the pros and cons of go-to-market specialization by industry vertical or function? Explained here:

WHY do it?

Customer success. Revenue. Growth. Profitability. Productivity. These are just a few of many drivers which influence a company’s decision to verticalize or not. The challenge is finding the right balance and effectively deciding when, where, who and HOW to do it. Those will be addressed in a future blog but let’s first look at some of the pros and cons of why to verticalize:

PROS:

- Specialized skills result in deeper, more meaningful customer engagements

- Vertical model avoids the challenges of geography wars between regional teams

- Focus means more repeatability and probability for success

- Greater success means more revenue and more profit

CONS:

- Specialized skills are difficult to find, develop and retain

- Vertical (vs regional) model adds travel and expense costs

- Focus could result in key markets and opportunities being ignored

- Greater success may not be worth the acquisition cost

From my personal experience, the benefits almost always outweigh any negatives. I’ve seen verticalized sales teams be as much as 10 times more successful compared to their non-specialized peers. Of course there’s added cost and investment, but this model has proven to be successful for some of the most admired and successful technology products and services companies in the world such as Accenture, Cisco and AWS.

Check back in later this month when we’ll dive deeper into verticalization best practices and examples!

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