B2B Go to Market: Which verticals should we go after?

Last year, a B2B startup asked me this interesting and hard question — which verticals should we go after? My summarized answer is — it depends on company growth stage and product maturity, and for younger companies it might make sense to focus on company segments (e.g., target SMBs, startups) vs verticals (leave this to later).

For a simplified view, these are the three questions I would ask —

1. To what extent has your company found product market fit?
2. What resources are available?
3. What kind of answer (level of specificity) do you want and by when?

1/ To what extent has your company found product market fit?

I recognize this answer is not easy to grapple with, and it might be exasperating to even hear the question. Hear me out.

• If you have found product market fit, your actual, paying customers are good signals of who else might buy your product — look for similar companies in that space. For example, if you notice a ton of Amazon sellers are using a particular tool/plugin you built, then arguably Ebay/Etsy (competitors to Amazon) marketplace sellers might find your tool helpful as well. This could also apply even if a software you built was specific for a vertical e.g., software for rock climbing gyms, but you realized that the usage could expand to similar “use cases” (one time entry, longer time slots, sudden spikes in attendance) e.g., golf ranges, but probably not yoga/pilates studios.
• If you haven’t found product market fit, and there is no discernable pattern to why your product is being used, then it’s likely that you’re still in the stage where there is no firm answer to which verticals to after. It will still be more of a trial and error on various customers types, so as to figure out the ideal “traits” of customers that might use your product. I think it’s common to go wider on the customer verticals first, make some mistakes, and then circle back to disqualify certain types of customers later.

2/ What resources are available?

This is a pragmatic consideration — using resources wisely by avoiding time sinks.

Larger companies have some luxuries

Larger companies might have the luxury of having revenue/sales operations teams to think through this and find lead lists (note: chatgpt does help, but someone still needs to check the data — will get into this later in the post). Spending time finding the best data sources and cleaning it is a time investment, as there are no perfect data sources — cobbling together of various sources is a necessary and heavy effort.

Focusing on business size vs vertical

As time is precious and limited, I’ll argue that a startup should avoid being too selective about verticals, and instead focus on what size of business they want to target. If possible, I suggest steering away enterprises (death by a thousand paper cuts of security, risk, compliance requirements), unless your product can avoid the intensive vendor onboarding process (e.g., the tool does not touch any sensitive systems so it can jump through reviews and be used quickly). Of course, in some industries this is not possible e.g., security software for enterprises, so again, it depends.

Credit to DesignStripe

3/ What kind of answer (level of specificity) do you want and by when?

If you want an answer quickly, some tactical thoughts below to pressure test your hypothesis quickly about which verticals to go after.

Brainstorm, Refine, Talk — getting started

• Brainstorm: When I first drafted this post, brainstorming was done by thinking through what key customer characteristics were, which verticals that might be in, and then alot of googling. But it’s much faster now. You could ask Chat GPT what verticals you should target, and share what your product is like and ask it to help match and come out with an initial list. For example, let’s say you think your product might be used by fintechs. You could google “[country] top fin tech”, or you could ask chat GPT to collate a list of the top fintechs with certain parameters — who have raised funding, and are still in business, are using ABC competitor.
• Refine: Chatgpt’s data (as of writing) pulls data from up to mid 2021, so you do have to refine your target list for who went bankrupt in the last ~2 years/do various accuracy checks. As you build your list, this is the time where you can look for “similar” companies, either via Chatgpt, or Linkedin Sales navigator, so as to expand the “similar companies” list. In this list, you’ll need to start “saving” the likely decision makers (hence Linkedin sales navigator) or checking mutual connections to get warm intros. I’ve found dropping notes into contact forms on websites to sometimes work if you can’t reach a business.
• Talk: Nothing beats talking to customers, to pressure test whether who you think is ideal really finds your product valuable. Maybe you’ll find out your hypothesis was wrong. I suggest talking to 2–3 customers in the verticals you hypothesize are NOT a good fit, so as to quickly confirm that you are right to disqualify them.

For speed, I over index on talking to companies in your “list” as possible, because if not it remains a hypothetical list and it really is anyone’s guess on whether that list makes sense. Your list gets better when you have more conversations. Continuing with Chatgpt, you can also tell Chatgpt to find companies that are similar to the companies that you had great conversations with, again adding to your targets and helping you refine your verticals.

Market sizing

This needs a whole other post. I was tempted to skip this section, since sizing numbers always seem to be squishy and dependent on what business case needs to be justified.

While the answer to “which vertical should I go after” could theoretically be — go after the “largest” addressable market, it feels like a cop out. It might sound good to “go after the addressable market with high margins” (what a dream!) — but what does that even mean? I’ll argue that only after you start the exercise of verifying whether your list of companies are interested in your product, and then see where the patterns are matching (e.g., maybe you thought ALL of the gaming vertical would love your product, but it’s a specific sub vertical), THEN, you can refine your sizing estimates later for the pitch deck.