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Modern buyers, both retail consumers and businesses, are demanding more from the companies they're purchasing from. They want products built specifically for them from experts who understand their needs. On the business-to-business side, we call this verticalization. This is a trend that is exceptionally prevalent in software.
Research by the Boston Consulting Group reveals that 76% of software buyers find it important to work with sales teams and management who truly understand their industry, while more than two-thirds value “industry-specific solutions.”
Investors like Bain Capital Ventures (BCV) admit that the concept of verticalized software as a service (Vertical SaaS) is fairly new, and for good reason. The question of depth vs. Breadth, according to BCV's reporting, can divide investors. Why would a software company willingly choose to limit its total addressable market (TAM) in favor of a specific vertical, after all?
When my co-founder, Amir, and I started Duda over a decade ago, verticalization wasn't even remotely as hot of a topic, and investors were far more skeptical than they are today. Focusing on depth is controversial now, but it was unbelievable then. Yet, as our product evolved and our company began to grow, it eventually became clear it's what we had to do.
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Serving everybody served no one
Our initial TAM was essentially anyone who wanted to use our product. As a website builder, that meant we were attracting a fairly wide range of skill levels to our platform — from small business owners to full-blown professional website designers.
Developing a platform that appealed to both of these audiences quickly became a real challenge. Someone wanting to build a simple menu website for their coffee cart, for example, would expect a simple, easy-to-use experience. A digital marketing agency, on the other hand, would demand more robust and sophisticated tools with a high degree of customization. These two persons are completely at odds.
Trying to balance and build a tool that is simple enough for a small business owner, yet sophisticated enough for a pro, proved to be extremely challenging — maybe not even doable at all, especially for a small team of engineers.
This wasn't a very big deal in the beginning. Growing fast made a lot of sense, and our initial product, a website builder specifically for mobile websites, had broad appeal. However, as the web evolved, so did our company — and we had to adapt.
Businesses went from having a desktop website and a mobile website to having responsive websites that adapted to both platforms. Websites became more complex and their designs became more intricate. While our platform became more powerful, our focus became less clear and our competition became more fierce.
Not only did this combination pull our product in too many directions, it also put us into competition with much bigger players in the website-building space. We needed to focus and differentiate.
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Verticalization brought us clarity
Deciding to verticalize our platform was not an easy choice by any means. At the time, roughly half of our customers were small business owners. How could we justify walking away from half of our customers?
For us, the decision was based both on the customer data we had as well as the sentiment of our team.
We saw, from our own numbers, that professionals and agencies were growing at a much faster rate compared to small businesses. Additionally, when we looked outward, we saw that this segment was painfully underserved by the market. Our engineering team preferred building more sophisticated tools, too, for more sophisticated users.
With the data on our side, and the team behind the decision, we chose to narrow our focus. Doing so brought extreme clarity to every aspect of the company. Suddenly, the sales team knew exactly who their customers were. Marketing knew who to talk to, which publications to work with and what influencers to coordinate with. Engineering knew who to develop for and which features to prioritize. The list goes on.
Here's a good example. We couldn't say the phrase “responsive design” in our marketing before we narrowed our market; instead, we had to say it “works on desktop, tablet and mobile.” This was clunky phrasing, but after verticalizing we were able to start using specific, technical terms in our marketing like “responsive.”
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Your platform can verticalize, too
The story we tell is one that a lot of businesses can relate to. Once we decided to focus on professionals, we never spent another dollar on acquiring a small business. To this day, our copy specifically speaks to website professionals and SaaS companies — the people building or offering websites to others.
This clarity inspired every feature that came after and helped propel the company to where we are today, with over 23,000 customers and a million published sites on the platform.
To make the same change, you need to ask the same question we did: Who are your best customers? This is a never-ending question, and one we continue to ask ourselves, too. When we decided that web professionals were our customers, the obvious follow-up question was: What kind? Freelancers? Marketing agencies?
Once you've found your customer, you need to dig deeper. What are their characteristics? What do they like about your product and what's holding them back? How do you get more of those customers?
Verticalization is about continuously double-clicking into your customers, diving deeper and deeper into their world until your product fully aligns with their needs. It's also about ensuring that those needs align with the DNA of your business. When the pieces align, the effort is well worth it.