Vertical Market Orientation
Sponsored series by the Valsef Group
Vertical markets supply products and services to a specific industry (i.e. banking, real estate, insurance) with precise user specifications, and thus vertical market software offers developments for niche applications which are already customized to serve their target market. Typically the competition in these markets is smaller as only a few organizations with the requisite skills will spend the time and effort developing such intricate constructions; this serves as both opportunity and risk since a worthy product will find a loyal customer base, but if not adequately serviced these same customers could mean complete ruin.
Technology offers us a host of horizontal market services and platforms from email solutions to marketing platform to bookkeeping software. They’re necessary for every business venture and with their global market it’s unsurprising that such products exist in the multitudes. Many of these horizontal market services are becoming highly customizable and are in some cases even tailored to the clients who use them but many specialists still maintain that the solutions possible with vertical market software surpass any one-size-fits-all product. Says Ouissam Youssef, founder and CEO of Valsef Capital, “What makes vertical market software so interesting to us is that generally big companies, and thus big R&D dollars, tend to shy away from vertical markets because they’re too small to warrant the investment. This creates a situation where a company can operate profitably without the constant influx of ‘irrational money’ attacking it. It is not uncommon to run across VMS companies that have average client tenures over ten to fifteen years.”
Entering a Vertical Market
The targeted solutions of vertical market software can be lucrative investments but only with the necessary groundwork and infrastructure. A substantial amount of sales and marketing investment is required, along with the core skills able to create a valuable product. Without a high level of experience and expertise in an industry, it’s unlikely a product will thrive in a vertical market, just as without the sales teams that understand both the technology and its role such software is unlikely to find a foothold.
There are, however, a few key practices which can assist. For starters, it’s necessary to have a grasp of the existing industry exposure. Certain industry segments are already highly diluted with vertical market software while others have too often been looked over. Concentrating on a segment with greater demand than supply is just good business sense. However, finding a market with high demand is not enough. The long-term prospects of any vertical need to be understood for an investment that’s going to grow. Finding such a market with both demand and longevity is a veritable recipe for success. Once the relevant niche has been targeted it’s crucial to provide the essential resources and commitment to a product. Operational excellence and networking shape customer loyalty and make it that much more difficult for future competitors to enter the same market.
Valsef Group, a technology investment group with the aim to grow both capital investment and the companies they back, invests in vertical market software companies via Valsoft Corp. Investing in stable businesses and fostering an entrepreneurial environment post-acquisition, the group cultivates such investments into industry leaders with an eye to long-term partnerships and lasting reward. Says Youssef, “We at Valsoft invest with a 40 year time horizon; we feel that differentiates us in this day and age. We look for companies that will withstand the test of time. We find there tends to be quite a few of those in the VMS business and that’s why we’re in it; there are many businesses worth taking care of.”
By Jennifer Klostermann