In-Depth

Go Vertical: A Guide for Partners

For many partners these days, the question isn't <i>whether </i>to develop vertical expertise. It's how to do it. Here's what you need to know to tap into these markets.

• By Rich Freeman
• June 01, 2008

Harvey Grant, president of Elypsis Inc., refined his Napa, Calif., enterprise resource planning business to focus on a narrow vertical industry: wineries. It took some work -- eight years ago, Grant spent six months learning everything he could about the wine-making business, at places like the Merryvale Vineyards (pictured) in St. Helena, Calif. -- but the effort has paid off.

For Harvey Grant, the fruits of vertical sales and marketing sure taste sweet.

Grant is president of Elypsis Inc., a Gold Certified Partner and Dynamics reseller in Napa, Calif., that started out some 21 years ago as a provider of generic enterprise resource planning (ERP) solutions. In 2000, however, conversations with clients in the wine business led Grant to an intriguing realization: No one in the IT industry was making business solutions specifically for wineries. Grant decided to fill that gap by creating a series of winery management add-ons for the product today known as Microsoft Dynamics NAV. Gradually, developing and marketing those systems went from being a dimension of his business to its sole focus. Today, Elypsis has wine-industry customers throughout California.

"We moved from being nothing in the wine industry to being a leader, and we're working hard to be the leader," Grant says. "I really don't believe all partners need to go vertical, but we've experienced clear benefits and I'm certain those benefits are there for other partners that haven't yet gone down that road."

Not that traveling that road is a snap, mind you. Grant spent six months studying the wine-making business, and his company put another two years into developing and refining new products. Helping his team make the transition from horizontal to vertical selling was a slow, deliberate process that took some additional time.

Grant's experience illustrates a lesson that many Microsoft partners are learning: Though adding a vertical-industry focus to your business can be richly rewarding, it's a move that's typically neither quick nor easy. Regardless of whether you're an ISV, solutions provider or reseller, "going vertical" means giving every aspect of your sales and marketing practices an extreme makeover. "It's a challenge for most firms," says Ken Thoreson, RCP's Selling Microsoft columnist and managing partner of Acumen Management Group Ltd., a sales-management consulting firm in Vonore, Tenn. "I don't think they understand the extent of the transformation they have to take."

Sizing up the Opportunities
The first step for any effort to go vertical is, of course, deciding which industries to target. Many companies begin that process by examining their existing client rosters because focusing on verticals with which they have prior experience can make it easier to realign their businesses.

"You've already developed some of the knowledge you need and you already have a reference base to start from," says Olin Thompson, vice president of industry strategy at Lawson Software Inc., an ERP solutions vendor headquartered in St. Paul, Minn. Bill Burke, president and CEO of Merit Solutions Inc., a Gold Certified Partner and Dynamics reseller in Wheaton, Ill., agrees. His company opted to make life sciences its vertical-focus area based partly on its past successful engagements with customers in that industry. "It's not a good idea to try to do something completely new," Burke advises. "You want to grow from your strength."

Striking a Balance

Going vertical can be an all-consuming process, but it's important to make sure that you don't neglect your horizontal practice as you make the switch. "You can't radically change your revenue mix overnight," notes Olin Thompson of Lawson Software Inc. For the typical partner, the transition involves slowly reassigning salespeople and marketers from the horizontal side to the vertical side of the business. Eventually, there's enough vertical cash flow to justify walking away from horizontal opportunities. "Part of being vertical is making a very conscious decision not to sell to certain customers," Thompson observes. How long does it take to reach that point? Unfortunately, there's no easy answer, according to Thompson: "You sort of have to feel your way through it." -- R.F.

Veterans of the vertical-industry approach say that all but the largest companies should -- at least initially -- limit themselves to one or two industries. Few IT businesses have the human or financial resources to master more than that at once. "If someone says 'I'm going to focus on eight industries,' they're not focused," says Thompson. To avoid confusing potential customers, he suggests selecting verticals with some logical connection to each other. Food processors and drug makers, for example, are both subject to federal purity regulations. Food processors and insurance companies, on the other hand, have almost nothing in common.

Many partners also recommend focusing on narrowly defined verticals -- for instance, medical laboratories -- rather than on broader and more general categories such as health care. Thinly sliced industries may yield fewer prospects, but they also usually have fewer partners serving them. That means less competition, which can position you to charge higher rates. Exactly how narrow should that market be? "I've worked with a guy who says if a market has more than 600 names, it's too big," Thompson says. In addition, partners say, it's important to look for industries with currently unmet needs. For example, when Merit first went vertical, the pharmaceutical space was dominated by big companies offering costly solutions such as the SAP ERP system. "We saw a void in market offerings for midsize life sciences companies," recalls Burke. His company has been successfully exploiting that void ever since.

Once you've chosen target industries, immerse yourself in their needs, jargon and operational processes. Most customers look for partners with thorough knowledge of their vertical's innermost nuances. "There's a huge comfort factor if they don't have to re-educate you on industry issues," says Greg Frankenfield, CEO of Gold Certified Partner Magenic Technologies Inc., a technology consulting company that serves the retail and manufacturing sectors, among others. Familiarity with a vertical's buying practices is essential as well. For example, knowing that government clients tend to spend the most money between June and September, when their fiscal years are winding down, can help you time your sales and marketing campaigns for maximum impact.

There's no easy way to acquire such knowledge, but most partners agree that attending industry conferences, reading trade magazines and consulting with industry experts can only help. Joining industry associations such as the National Retail Federation and the National Association of Manufacturers is another smart move, says Thoreson. Such groups can provide invaluable insights into a vertical's top challenges, while also helping you develop an informal network of advisors and references. Hiring people with deep vertical experience may be the fastest way to boost your company's industry know-how, but don't forget to look for hidden pools of expertise among your existing staff as well.

Ultimately, however, your own customers are typically the best resource for learning an industry's needs and lingo. Thompson suggests approaching a few clients in a target vertical market and simply asking them to tutor you about their industry. Most companies will be only too happy to oblige, he says, wagering that the more you know about their businesses, the better you'll be able to serve their needs.

Keeping the Wheels on the Bus
Starting to feel like an industry insider? Then you're ready to begin building that knowledge into your company's marketing materials. To attract vertical prospects, you must display deep vertical proficiency in every vehicle you use to promote your company, from collateral pieces to your Web site. Plan to adjust your marketing tactics, too. In most industries, senior managers tend to dominate the decision-making process, so many vertical partners find focused, intimate activities such as executive seminars more effective than shotgun blasts of telemarketing and direct mail. Industry trade shows can be great marketing opportunities, too, many partners say; just be sure to steer clear of marginal events with low attendance. If you're not sure which shows to invest in, Thompson advises to simply go online and review their exhibitor lists. Anyplace your competitors go is someplace you should go as well.

Realigning your marketing vertically is the easy part, however. "Where the wheels kind of fall off the bus is with the sales organization," warns Ellen Carney, a senior analyst and vertical marketing specialist at Forrester Research Inc. Sales teams new to vertical selling often regard the process as a threat to familiar techniques and predictable commissions. Moreover, closing vertical deals requires a consultative sales approach that some reps aren't experienced enough to handle. In fact, Carney says, companies often see a 10 percent to 15 percent sales force turnover rate after going vertical. But she and others point to several ways that you can make transitioning your sales approach go more smoothly:

Streamline training. Introducing your sales staff to a target vertical's intricacies is critical for success, but few salespeople respond well to lengthy classroom training sessions. "They have limited attention spans, because they have a lot of stuff to do," Carney says. Quick, targeted options such as podcasts and one-page cheat sheets are typically both more popular and more effective, she says.

Offer incentives. Some firms entice sales reps to pursue vertical opportunities by temporarily offering higher commissions on such deals. But simply providing more collateral, references and pre-sales technical support for vertical opportunities usually costs less and works just as well, Thompson says. If vertical deals are easier to pursue than horizontal ones, he says, sales reps will go after them more often.

Reward successes. Salespeople are naturally competitive, Carney observes. Celebrating vertical wins can be a great way to get account teams vying with one another to land the next big deal.

Cindy Colonna, president of Team Technology Inc. in Matthews, N.C., says going vertical takes patience.

Assistance from Redmond
If the challenges of going vertical are starting to sound intimidating, Microsoft will be more than happy to help you through them. Convinced that industry solutions are a key source of future growth, Redmond is taking a variety of steps aimed at easing its partners toward specialization. "We're definitely encouraging partners to go vertical," says Anne McClelland, senior director of worldwide industry strategy in Microsoft's Enterprise and Partner Group.

As evidence, McClelland points to Microsoft's verticalization "quick start" tool. Available online from the Microsoft Partner Program Portal, the tool offers step-by-step instructions for developing and executing a vertical strategy. Also accessible are a how-to guide to vertical marketing, industry sales and marketing training classes and the Partner Solution Profiler, which helps companies promote their vertical wares to customers and other partners via Microsoft's public-facing Web site. Microsoft also helps partners build awareness for vertical offerings in more active ways. As just one example, Merit has promoted its products in the Microsoft exhibition booth at industry trade shows and collaborated with Microsoft on co-funded marketing campaigns and joint sales opportunities.

Closing the First Sale

For partners new to vertical sales, landing that all-important first customer can be mighty challenging. "It's kind of like the kid out of college looking for that first job," says Cindy Colonna of Team Technology Inc. "You need references." If you're in the services business, Colonna notes, joining an ISV's partner program can get you instant credibility, and sometimes yield leads as well. Alternatively, offering heavy discounts will often give your first prospects just the extra encouragement they need to take a chance on you. Bill Burke of Merit Solutions Inc. sums up the approach this way: "You may need to look at the first sale as an investment." -- R.F.

Eager to get that kind of support yourself? Burke recommends basing your vertical solutions exclusively on Microsoft software, as Merit did. "That's a hard strategy decision to make for some firms because they're afraid to be committed to one platform," he concedes. But the depth of that commitment is precisely what will get Microsoft's attention. Building a track record of sales success in your target market also draws Microsoft's notice. "It's like anything else," says Cindy Colonna, president of Team Technology Inc., a Dynamics reseller and Certified Partner in Matthews, N.C., that targets distributors and auto-parts suppliers. "Show success with them and they'll support you" financially.

Team Technology began adding vertical focus just three years ago, Colonna says, and still earns some 40 percent of its revenue from horizontal engagements. But the vertical deals tend to be easier to close and more profitable, and customers appreciate the deep industry knowledge Team Technology employees now bring to the table. Colonna urges partners realigning themselves vertically to be both diligent and patient. "It's not going to happen overnight," she warns. But like many other partners taking the vertical view, she's convinced that the benefits are well worth the effort.