At a recent tech conference, I got into a rather enlightening discussion about viable business models with a group of successful solution providers. Three of the four tech entrepreneurs spent some of their time and resources evaluating the opportunity for selling and supporting certain cloud applications this year. The surprising part is they were not as focused on the technologies themselves, but the prospects they offered for entering new vertical markets.
For example, one provider accepted an invitation to attend a combination user/channel event hosted by a legal cloud applications form earlier this year. Not only did he learn a great deal about the company’s solutions and ways his team could integrate in other valuable business tools, but he met a number of potential prospects. Several attendees were office managers and attorneys from his local market who willingly shared their challenges adopting the vendor’s cloud solution — many of which the provider believes his team could easily solve. He returned from the conference with an improved technical skill set and three hot leads to follow up on. With a little more training and some changes to his company’s business strategy, he hopes to land at least one of those firms and start building out a legal services practice.
You could use a similar approach to develop almost any vertical. One recommendation would be to add a step on the front end; researching the types of businesses in your particular geographic region to determine which markets hold the most promise. Look at the number of companies in each specific classification code as well as the size of those organizations whenever possible. For example, even if you find what looks to be a heathy opportunity for building an IT practice to support insurance firms, with 30 agents in your area, if 90% of them are one to two person shops with revenue of $200K or less, the ROI for that market would be quite negligible.
But if the opportunity is real, say 20-30 firms in a 25-mile radius with 25 or more employees and millions in revenue, it’s worth digging deeper. You have to do your homework.
After determining whether a legal, banking, healthcare or other specialization makes sense for your IT services business, it’s a good time to test the market before making significant investments. Research the top cloud solutions for that particular vertical and scout out local, regional or even national user group meetings that you might attend. Narrow down that list to the top one or two event prospects and make the appropriate travel and scheduling arrangements.
Be sure your time is well spent. Immerse yourself in sessions to learn the terminology of that market and network as much as possible to identify thought leaders, the vendor’s channel executives and prospective customers. Get feedback on the pros and cons of specific solutions from the users who rely on and work with those specific technologies each day. User events are a great way to “test the water” and uncover potential issues before committing to work with a particular vendor.
The Cloud/Vertical Synergy
Attendance at a meeting won’t build you a new vertical. But it will help providers understand how crucial the cloud is in that process. Or should I say it makes the move to verticalization much easier for many IT services firms, lowering the cost of entry and increasing their solution options. That also reduces the associated risks. In the past, the investments required for IT service providers to offer and support specialized software were often substantial. Some vendors were forced to buy certain tools and manuals, and send team members through vigorous training programs that often came with high price tags. Others forced channel partners to buy into certain marketing programs to support a new vertical. Many of those became fixed costs that were never recouped and ended up taking a big chunk out of their bottom line when the solution failed to gain traction.
Of course, cloud solution channel programs may come with some of those same requirements, but the investments are typically quite low. With the ability to scale quickly and market barriers so low for new vendors, cloud providers tend to offer favorable upfront terms and conditions to new partners. With so many VC (venture capital) funded organizations in the cloud space, the number one objective is to grow seat count. Those vendors are usually quite supportive of any channel partner willing to help them accomplish that same goal.
Another reason why cloud offers such a great vertical play for IT services providers is the network. The infrastructure demands align perfectly with one of the channel’s top skill sets. Providers understand how to design and support the systems that make it all work. Even if the margin on a certain cloud application is only 5-10%, the network and security services they can build around it are often bring much greater returns. In verticals where uptime is crucial, such as banking, insurance or healthcare, the profits can be quite lucrative for those with the right skills. The better your team gets at understanding those customers’ challenges and dealing quickly with their issues, the more valued your organization will become.
Could that type of vertical play make sense for your IT services business? If you need a little help calculating the potential of a new specialization, download the free CompTIA Quick Start Guide to Entering a New Vertical Market. It might just be the high profit opportunity you were looking for.
Brian Sherman is Chief Content Officer at GetChanneled, a channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at Bsherman@getchanneled.com
