Launching Into Specific Verticals and Geographies

Question: In your experience, how targeted should an IT Security software start up be in terms of focusing on vertical markets in specific geographies when first launching?

Answer (Brad): There are three constraints to this question: Product (IT Security), Market (Specific Vertical), and Location (Geography.)  There are two key questions to ask.

1. Market: Is your product a horizontal one or does it lend itself to specific vertical markets?  If you are a student of Geoffrey Moore and have carefully read Crossing the Chasm then you know you should start with a specific bowling pin (e.g. vertical market), dominate it, and then move on to the next one.  However, this assumes you are a student of Geoffrey Moore.

2. Location: Is your product sold via a direct sales force (e.g. sales dudes / SE’s need to travel to the customer) or is sold via telesales / downloads? 

In my experience, overconstraining yourself too early is a mistake.  Most IT Security products that I’ve encountered lend themselves to a horizontal sale (e.g. not the strategy advocated by Moore.)  Many of them require dedicated direct sales activity.  In general, if you take a vertical market approach or a geographic market approach, you are buying into the other (e.g. verticals and geography go hand in hand.) 

However, look for the early adopters in specific markets and go after more customers in those markets – especially if you can find verticals that are linked to geography (e.g. NY-banking; Delaware-credit card; NY/Boston/SF/LA–legal; DC-govt.)  If you start off a little more flexible, you might find the best vertical markets via customer adoption (rather than ponderous and usually inaccurate market research) which can result in you more effectively targeting specific vertical markets.

In contrast, if your product is more lightweight and can be sold via either a web download model or telesales, geography matters a lot less.  In this scenario, you should consider having more focus on specific vertical markets since you won’t be limited by geography.