Why Technology Companies Should Adopt a Vertical GTM Strategy

Why Technology Companies Should Adopt a Vertical GTM Strategy

Earlier this year, I spoke with over 30 senior executives from across the technology and services industry, all of whom have responsibility for their companies’ sales and go-to-market strategies. They all agreed on three major factors that are having a profound impact on their companies:

  1. Revenue growth is not living up to expectations; whether it’s from new or existing accounts, performance is not where shareholders need it to be.
  2. The shift to the subscription, or XaaS, business model is putting strain on their income statement and sales operating practices.
  3. Business buyers are increasingly responsible for their own technology budget, and they want to talk about business outcomes and not about features or functions.

Within the context of these three observations, I’ve written this blog to talk about how moving to a more vertical go-to-market posture can help technology and services companies grow revenues and improve sales performance.

Technology and Services Companies Need to Target Verticals to Be Profitable

Traditionally, most technology products and services have been sold as a horizontal solution that can be sold to and adopted by companies across different industries. There are, of course, exceptions; healthcare and industrial equipment manufacturers have typically focused on industry-specific offers.

From all the publicly available data, we can conclude that technology and services companies that take their offers to market with an industry vertical focus are, in general, more profitable than those that don’t. Born-in-the-Cloud SaaS companies typically grow revenues faster, but profitability remains a big issue in that slice of the industry.

So, based on the feedback from the interviews that I conducted earlier this year and the fact that more vertically-focused companies are more profitable, surely everyone should be making this shift.

Making the Case for a Vertical Go-To-Market Strategy with Data

In October 2018, TSIA conducted research in order to understand whether companies with a vertical go-to-market posture are growing subscription revenues faster than those who remain horizontal. The results were impressive; we classified companies as having either a horizontal go-to-market posture, a partially vertical posture or a fully vertical approach to go-to-market.

subscription revenue growth year over year
Subscription Revenue Growth Year Over Year

Making the shift from being horizontal to vertical in the way you function as a business clearly makes sense, especially when you further consider that one of the imperatives of being able to engage with business buyers is that you have to speak their language. You must be able to demonstrate to them that you understand their business and that you can show a tangible connection between the solutions you offer and the business outcomes that they are looking to achieve.

What A Vertical Go-to-Market Strategy for Tech Looks Like

Most companies will start by making the move to being partially vertical. We call this the “Thin Vertical Veneer”. As you can see from the results in the chart above, the benefits of doing this are worthwhile. Nearly double the number (49% vs 28%) of companies that have made this move are growing subscription offer revenues by more than 21% year-over-year.

The process described below is the one we see most companies follow. It usually starts with Marketing making a move on the company website to talk about case studies in a particular industry, and then the rest of the company follows.

Vertical go-to-market sales strategy
Vertical Go-to-market Sales Strategy

This isn’t the only way that companies evolve a partially vertical go-to-market but it’s the most common approach that we see in the technology and services industry.

In our experience, the infrastructure OEMs find this shift the hardest, and it’s slightly easier for software companies while the non-OEMs (SIs, ISVs, MSPs) find it relatively simple to make these first steps.

Proven Best Practices for a Successful Vertical Go-to-Market Strategy

The practices that we’ve seen successful companies adopt as they take this journey include:

  • Start by understanding where you are and what revenue comes from which verticals. Look to identify the biggest 2-4 to start with and check for any significant sub-verticals (i.e. banking or insurance in financial services).
  • Take the top 2, 3, or 4 and bring together a core team who will focus on growing revenues. This will start as an overlay function to support the general sales force.
  • The initial priorities will be to improve the effectiveness of account planning, build credibility with industry customers, and build case studies that demonstrate the business outcomes that you can impact.
  • Start to bring your customers together. This can be informal to begin with and the purpose is to show these customers that you are a thought leader and facilitator of sharing best practices.
  • Create internal cross-functional teams that work across different accounts in the same industries. This should include sales, design, architecture, delivery resources who can all learn from each other (without breaking your customers’ trust and confidentiality agreements).
  • Build industry-specific Outcome Chains that show the connection between your offers and the industry business outcomes that your customers care about. This will further demonstrate your ability to speak their language.

Companies that have made this shift have highlighted the importance of changing the metrics and starting to introduce elements of compensation change to start driving the right “vertically-oriented” behaviors. The metrics that have been introduced as companies start to make the shift include:

  • Revenue per industry vertical: To start tracking progress of the performance of your chosen industry verticals, it’s important to track an absolute number as well as the percentage of overall company revenue year-on-year.
  • Vertical penetration: You will want to get a reasonable handle on the percentage of share that you have which will bring focus to the market opportunity.
  • Number of vertical solutions deployed: Tracking the absolute number of vertical solutions that you have deployed (vertical configurations of a traditional offer) will keep strong alignment between sales and product functions.
  • New business win rates: One of the key reasons for making the shift to a vertical GTM model is that you should improve your percentage win rate in the industries where you have invested in the overlay function. Tracking win rates is the first way to assess if things are working.
  • Average order value: This is the second impact point of sales metric to track. The overlay vertical team should be able to drive up your average order value which should in turn improve your point of sales gross margin.

Let TSIA Help You Improve Your Vertical Go-to-Market Strategy for Tech

If you’d like to learn more about our Subscription Sales research practice of how TSIA can help your organization map out your vertical go-to-market strategy, please reach out to us. We look forward to hearing from you!

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