Why select the best industry using a selection method
Since 2013 I have spoken with many companies inside and outside of Europe, that offer software or software development services. The aim of the conversation is to explore if, and how, their offering can be exported to the Netherlands.
I start these talks with the question, which industries they serve, and which industry they want me to contact. Often the answer is something like: “These 4 out of the 7 industries we serve”. The lag of focus is a problem. Jeffrey Moore describes this in his book, Crossing the Chasm, in analogy to the second world war. When you want to liberate Europe, you should not disperse the tropes all over Europe. It is needed to create one beachhead (Normandie) and next take over the adjacent areas. In other words, focus all effort on one market segment en become a market leader there fast. Then move to an adjacent industry. This means you have to select one industry to focus on.
You also need to know, why you selected this industry. When it turns out that entering the selected industry is more difficult than expected and results are lagging, companies tend to start hopping from one industry to another. All effort done in the previous industry is lost. In this course I try to prevent this by offering a method for the selection of the right industry. Let’s first look at how companies come to serve different industries.
The diversification phase of companies
In the early days of an organization there is not yet a steady reliable stream of new clients. This forces companies into a survival strategy in which they will serve any client with any kind of problem in any industry. Especially companies that offer custom software development or nearshoring tend to be in this phase. Their websites often show the development technologies they master, but no specific solution and no specific industry. No focus yet. When your company is in this phase, creating a focus could help to get beyond the survival stage. You could create a focus on an industry (vertical) or a solution (horizontal).
Focus on industry (verticals)
A good approach will be to create a showcase for a specific industry. An example project with valuable lessons learned. This document can be presented to the potential and could be of interest. After the potential has read the show case, the question can be asked if he wants something similar. It would be even better if the document would contain multiple showcases in the same industry.
Focus on a solution (horizontals)
When an identical solution is provided to clients in different industries, then a strategy could be to present the company as an expert solution provider for this type of problem. Lessons learned from other industries could be valuable and worth putting in a showcase document.
The convergence phase of companies
The next phase of an organization starts when there is so much custom-made software that it becomes impossible to maintain. They need to standardize the software which sometimes means they have to say goodbye to specific clients. The standardized software typically has a solution specific focus. (There can be more than one standard software solution).
Industry specific solutions phase
Next the standard solution is further developed and made more applicable for specific industries. Extensions and addons are added. Take for example an ERP solution. The general solution part is the finance module. This solution can be extended with modules for logistics, HRM, MES integration, RFID, Track and Trace, Point of Sale, integrations etc. A full matrix is offered containing multiple industries and multiple solutions.
How to narrow down the full matrix
To determine what part of the portfolio to focus on, it is good to consider if a module only sells when another module has been sold first. This way we can strip down the upsell products and reveal the core solutions to focus on. In the example of the ERP solution this would be the finance module. Maybe in combination with the logistics module when these are always sold in combination.
The Sweet spot
The company is presented strongest when the focus on industry and the focus on a solution is combined. In other words: We offer a solution for this specific problem, occurring in this industry. A company can offer more than one industry-solution combination. The selection method is meant for finding the only sweet spot to focus on.
Now we know that we must select one sweet spot. Before we move on to the next lesson let’s move to the topic “The industries you serve”.
