Updated: Feb 1, 2021
For whom is this blog:
For software houses with teams from 3 to 30 people
For service companies that start their marketing
You will find here:
What is vertical specialisation and how it can help your business
Effective method to increase your margin
Why niche marketing is effective
Have you ever thought about building a strong position in a niche market for your 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?
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’.
Specialisation types for a software house
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.
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.
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.
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 :)
Top software houses do not look for niche markets ...or, they do?
The beauty and a course of running a software house is that you do not need to care that much about new 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 house vs client's expectation
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.
Increase your margins on the niche market
Your potential client: '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 client’s 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 decide 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 cheaper to run when you focus on a 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 marketing strategy and actively acquire ideal clients, 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.
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 one client.
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 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.
How to find a niche for a software agency?
A way to research your niche is easier than one may expect and bring you and your team more satisfaction from your business.
Start from your experience and client portfolio. See which industry you work with most frequently, and your knowledge is most extensive.
Reflect yours and your team passion and interests. These will help you create powerful communication, and your 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 industry.
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 your new niche.
The idea of finding a niche may feel overwhelming at first glance. Don’t let that stop you.
Building a speciality is one of the best moves you can do to increase your business profitability, marketing efficiency and to reduce your stress. Full stop.
So… what’s stopping you from building a strong position in a business vertical?
I'll appreciate your all comments and thoughts about the topic of software houses specialisations in the comments below. If you'd like to discuss your case in details, please book a meeting HERE.