Guide on How to Find a Niche in Software Development Company in 2023
Updated: Sep 21
For whom is this blog:
For software development companies and software agencies that struggle with market positioning
For service companies that start their marketing and aim to build a strong Value Proposition
Table of Content:
Introduction of niche marketing for software development company
Have you ever thought about building a strong position in a niche market for your software development company or software house?
For sure you did, just like numerous founders and owners of custom software development companies in Poland, Germany or other CEE markets.
This article will explain why getting a vertical specialisation is one of the most effective ways to thrive a business. If you run a software development company with a team between five and thirty coders or you are a new entrant on the market.
Building up a speciality for your service company seems to be a lifebuoy on a saturated and competitive market. You can increase your margins, make your marketing and sales more comfortable and finally start sleeping well without fear of losing cash flow liquidity or your best developers going away from your company. Isn’t it good?
what is called niche marketing and what is a business niche?
To be on the same page, let’s introduce basic terms to our communication.
A niche market isa subset of the market on which a specific service is focused. The niche market is highly specialised and aiming to survive among the competition from numerous super companies as Wikipedia definition says.
Specialisation is a company’s know-how within a particular market, vertical or service. It is a competitive advantage of the company.
According to Kim Kosaka, Director of Marketing at Alexa, niche marketing is an advertising strategy that focuses on a unique target market. Instead of marketing to everyone who could benefit from a product or service, this strategy focuses exclusively on one group - a niche market’.
What is a niche in IT/software development industry?
Specialisation types for a software Development Company
Before choosing a niche for your software house, you might consider at least three niche types. Different specialisations types might be more or less helpful at a clients' acquisition process from a marketing and sales perspective.
What is a Horizontal niche
The horizontal specialisation is frequent and natural in the custom software development market. You focus on particular services like DevOps or programming languages like PHP or Python. Services are universal and cross-industrial, which means almost everyone who builds software might apply your programming technology or service.
Horizontal specialisation has its pros - universal application and broad market, but has its cons too - it is hard to show uniqueness or stand out, which is especially tough for new and small companies.
The horizontal specialisation requires your buyer to understand why a particular technology would significantly change their business. In this case, your buyer is CTO, CIO or another tech person. On the contrary, non-technical persons might not see the importance or value of your service.
What is a Platform niche
You are focused on particular frameworks or platforms like Shopify, Salesforce etc. Even a non-technical client of yours is aware of the technology they use, they recognise its value and know that they cannot work without it, so see the importance of your service within the area. Your buying persona is CEO, Business Manager, CTO or other.
Platform specialisation is narrower than horizontal, might be cross-market.
What is a Vertical niche
In other words, it is your clients' industry. It might be finance, supply chain and logistics, manufacturing, agriculture, insurance, real estate, etc. If you get focused on a particular industry, you will solve your customers' specific problems, speak their language and know industry specifics. Doesn't it sound like the extra value you can offer to your customers?
In Vertical specialisation, you will more often communicate with a business person that needs to solve a business problem rather than technological. Technology is a tool rather than a goal :)
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Book a meeting with GrowMy.Tech, to check how you can scale up and get new clients globally by niching down your marketing.
Top software agencies do not look for niche markets ...or, they do?
The beauty and a course of running a software development company is that you do not need to care that much about new business and projects at the early stage. When you do your job well, then clients refer you to others through word of mouth. Why should you think about marketing or getting specialised?
After some time your company grows up, you hire new people, your fixed costs become substantial, so you need to have predictive and repetitive revenue. That is when the need for market communication and marketing comes in.
To understand the competitive landscape of yours, it is worth mentioning a few numbers. It is estimated that only in Poland, there are 3000 software houses on 61 000 IT companies. In Germany, there are over 90 000 Software and IT service companies. The bulk of them are custom software development companies that ‘build the future of their clients’ or ‘develop top-notch software’, and 50% of them work with startups from Silicon Valley.
So with no vertical specialisation, you compete directly with thousands of ‘the top software development agencies’ or ‘software houses that work with startups and SMEs’.
Finding a niche for your business is essential, you will learn that after analysing the Clutch Leaders Matrix. Established and mature software development companies benefit from both offering general software development and utilising specialisation at verticals. Go and review pillar pages they have for dedicated market segments. You will be surprised how many of the leaders build specialisations.
Specialised software development company vs client's expectation
Identify the problems and needs of your customers
Let's take a closer look at how your target market is struggling. Do passions and interests satisfy the needs and desires of the customer? Tell me the motive behind buying?
For a moment, let's imagine you are your own potential client. You are from the supply chain industry looking for a software development service. Your business environment is industry peers, transportation, production and wholesale companies. You know how supply chain businesses work, the best strategies to maximise profit on materials flow, but you are not that good at software development.
You see an optimisation opportunity that might be automated. Your clients list the problem you want to solve as the most demanding for them and the industry. Your solution might be a game-changer on the market so you need to find a technology partner for your new venture.
Who would you prefer to do business with? A company talking only technology, like Kubernetes, Django framework, Continues Deployment, or one that speaks supply chain language, understands legal requirements your software must meet, what are industry best practices regarding back-office software?
Understanding your customers, the language they speak, and processes they manage helps you build a rapport with them.
Talk to potential target customers from your niche.
Talk, adjust, repeat.
To get niche market examples, check with potential customers if they are interested in the product or service and if they want to buy it. Verify if it solves your ideal customer problems. When you are not on the mass market it's much easier to understand the niche market demand. Get on the phone, video call or meet your potential customers in person.
Understanding your target audience is not a piece of cake, as many of us make the mistake of blindly following our personal assumptions.
To help you with becoming a pro with your target audience analysis, I have written two articles:
The first one helps you to build a theoretical and fundamental understanding.
The second one will guide your through practical, hands-on guide on tools and methods of Your target audience analysis in Software Development Firms.
Next, use Google Analytics, Google Trends, Ahrefs, Surfer SEO or other tools to learn more about what your target audience search for, and what are your targeting options.
Do people talk about problems? Is there a solution in sight? If so then this could be your potential niche.
Increase your margins and profitability by defining your niche market
If you invest in the growth of your business, it should be profitable. What should one think about when developing their niches?
Your potential client might say: 'Other software development companies have lower rates, why shall I pay you that price?'
Your client knows what market pricing level is. They google it or ask competitive agencies. So it is hard to increase your margins unless you differentiate your services from the market to show unique value.
To picture that, let’s compare it to other specialised services: a mechanic for home appliances, like a dishwasher, and a technician who would fix a production line. The description already shows that the latter is not super cheap.
Once your offer is generic, and skills are universal, you need to compete with price, not only with local companies but with all that work at your and close time zones.
Having a specialisation will give you the following answers to the target audience price objection:
‘We understand your problem deep enough to solve it.
We know your industry standards, understand processes and requirements you need to meet, all that helps us to deliver the best software for your business.
Thanks to the expertise, we are faster and better, so you will avoid low-quality development and lost time and overpayment.
Those are the reasons why our hourly pricing is high, but at the end of the day, you pay less, as we have the know-how you need.'
Make your marketing and sales way easier.
Having a niche will help your client justify higher pricing and have a better idea of why to choose your company, but it will also help you and your team be focused. Concentration will help you maximise your valuable resources.
Easier communication in niche marketing
Think about how you would differentiate yourself from other general-purpose software houses?
When you go to vertical specialisation, your marketing strategy will get fresh air. Think about the tactics you use to build your brand:
Content and inbound marketing
Unique Selling Proposition (USP)
All will be easier to execute and decrease marketing costs and increase your income level when you find your niche. It is easier to formulate a value proposition for fintech startups rather than to all startups. Once you get that specialisation, you might efficiently execute account-based miche marketing strategy and actively acquire ideal clients who you can turn to your loyal customer base, which is hardly possible in execution for general purpose service companies.
Word of mouth in niche marketing
Think about your family, friends and clients who might be a source of your marketing and referrals. They will help you, but only when they understand your business and can easily describe it to their peers. Think about a software house that specialises in software for schools and educational institutions.
Firstly, it is ultra-easy to understand who might get help from the software house.
Secondly, your clients from the education sector would recommend you to their peers with whom they meet at conferences, industry events, or daily work.
Thirdly, specialisation is an answer to potential clients’ most common objection: ‘Are they capable of developing software for my business? Would they understand the problems and needs of my industry?
With your focus on a niche, your network might be an additional sales lead source. They are happy an you are. It's a win win situation.
Increase the CLV of your clients on niche markets
It is not only SaaS companies' purpose to secure high Customer Lifetime Value. Software development agencies need long term contracts and partnerships with clients too. When you are perceived as an industry expert on top of software development, you increase your chances to get more business from relevant customers.
General-purpose service companies are often treated as a cost optimisation option which is useful once you want to deliver simple tasks. Still, once you aspire to be involved in complex and challenging projects, specialisation and authority are needed.
Cost of marketing and client acquisition will go down
My experience shows that customer acquisition is far more effective and cheaper when your USP addresses a niche market rather than a broad and general one. Reasons are simple, the competition for a
Niche marketing traits:
high intent keywords
high intent searches and buying intent
highly targeted audience
sharp and clear USP
General markets are saturated and require more time end effort to get visibility and awareness. Take a look at content and inbound marketing examples. If you would like to write an informative ebook on how to build MVP, outsource IT, or show advantages of Java development, you will face fierce competition. To be visible on the first page of searches for the most critical keywords in your content have to be complex and hyper optimised, which takes time, money and effort.
On the other end, niche marketing allows creating informative content that is easy to find by specific audience on the first Google search results page with lower resources required to develop it.
Do simple research with whom you compete when searching for PHP developers. The results are software agencies, programming schools, marketing agencies, recruitment agencies and many more. Once you search for a custom software development company for the telecommunication industry, the results are opposite. You will notice that competition is lower, and the potential to be positioned at the first Google page is higher. Niches help to get better business idea to get more sales.
The Process of Finding Your Niche
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Identifying your unique skills and strengths
In the hustle and bustle of the software development industry, the concept of 'finding a niche' attracts a significant amount of buzz. Despite its popularity, there is a noticeable deficit in practical information and a scarcity of professionals who give pragmatic advice on this topic. The theory of identifying a niche seems simple enough, akin to choosing a flavor from a box of assorted chocolates. However, in practice, it can be as intricate and challenging as solving a Rubik's Cube. Having worked with numerous companies, guided by experience and insights from industry experts who specialise in niche-finding, I have curated this guide for those who wish to delve deep into this often misunderstood, yet vital, aspect of business strategy.
Practical Steps To Find Your Niche:
Start from your experience and client portfolio. See which industry you work with most frequently, and your knowledge is most extensive to narrow potential niches.
Reflect yours and your team passion and interests. These will help you create powerful communication, and your target customers & potential clients will notice that passion.
Identify your ideal client and buyer personas' potential problems. See if you know how to help them or how to grow your expertise within the broader market.
Research firms that are your new competition segment. Some verticals are more competitive, and some are less. Check the situation and reasons for that.
Define a number of potential niches.
And now, try to evaluate them against a list of factors that will determine your success. This great techniques I have learned from Michael Zipursky and his Course for Consultants Momentum.
Experience: How would you rate your experience with this niche?
Expertise: How would you rate your status as an expert within this niche?
Results: How would you rate your confidence that you can deliver results for this niche?
Potential: How would you rate this niche’s growth and how willing they are to hire consultants?Potential
Access: How would you rate your interest in this niche?InterestHow would you rate your ability get in front of and to speak with ideal clients in this niche?
You can dress it up into a Google Sheets to verify.
The very first result of such an exercise would be your ability to build hyper elevator pitch, claim, or value proposition for your clients. You call it as you wish.
Here are two variations of this.
This "Creator Statement" by Jon Brosio, I have found on Josh Viner's X (ex-Twitter) account (https://twitter.com/joshdviner/status/1586386934687010817?s=20)
Another variation of this statement was coined by Mike Zipursky.
Try to fill those messaging temples when you focus on a niche and when you communicate to a general, not defined market. I can bet the first option would be easier.
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Book a meeting with GrowMy.Tech, to check how you can scale up and get new clients globally by niching down your marketing.
Conclusion on niche marketing:
The idea of finding a niche may feel overwhelming at first glance. Don’t let that stop you from becoming a more profitable business.
Building a speciality is one of the best moves you can do to increase your business profitability, marketing efficiency, get more customers, increase your brand loyalty to reduce your stress. Full stop.
So… what’s stopping you from building a strong position in a business vertical?