At some point, whether consciously or unconsciously, every business must decide on the range of products and/or services they will provide to their customers and what type(s) of customers they target.
If the accessible target market of a business is small, then the business will likely need to offer a wider range of products and/or services in order to generate sufficient revenue from its relatively small customer base. Conversely, if the target market is large, then the business can afford to specialize and focus it’s products and/or services to a narrower band. Thereby they remove a lot of complexity from their operations, while offering greater expert value to their target customers.
I have found this correlation between market size and business focus is especially valid in the software industry, while it also applies to many other business categories.
My company, Datagate Innovation started its life in New Zealand as a SaaS billing and reporting solution for businesses that sell usage-based services, such as telecommunications, electricity, water, Software as a Service etc. Given the relatively small size of the New Zealand market, our initial approach was to apply our sales and marketing efforts across all the various industries for which our software could be used. I call this having a “wide focus”, which seemed logical at the time, to win as many customers from our small New Zealand market population as we could. In hindsight, it was a great opportunity to test and evaluate the various different industry opportunities within a small and accessible population.
The downside to a wide focus is complexity, and complexity generally makes it harder to scale-up a business.
Datagate found that there was plenty of demand and opportunity for our product in each of the industries we engaged with, but we soon realized that each was pulling us in a slightly different direction. Each direction involved a different learning curve, more costs, different marketing, different pricing, different language and slightly different functionality and integrations in our product.
We wanted to scale-up our Datagate business as quickly as possible, but the complexity of supporting multiple customer categories made this difficult, with extra costs and less repeat-ability and re-use of existing resources, the wider we went.
The answer to our scaling-at-speed challenge, was to narrow our industry focus, while at the same time increasing our geographic focus. So to do that, we picked one target industry, while expanding our target market beyond New Zealand, to other larger economies such as North America, the United Kingdom and Australia. The industry we chose was telecommunications and more specifically, we focused in on the fast-growing segment of MSPs (Managed Service Providers or IT Services Companies) who are now selling telecom/voice solutions, due to the convergence of computers and phones.
The widening of Datagate’s geographic focus did introduce “some” extra complexity to the business, with the slightly different language, tax and compliance requirements of each country, but the complexity was far less than that of targeting different industries.
As our software product matures, we continue to add functionality that is more specific to telecom billing and integrations to other software products, such as ConnectWise, QuickBooks and Xero, that are commonly used by our MSP target market. This gives us a high level of efficiency, where everything we do in product development and marketing is mostly relevant to our whole target audience. This would not be the case if we had a wider focus and were targeting multiple industries.
We have found that customers (and investors) in the larger economies, such as North America, generally expect software solution companies like Datagate to be very specialized in what we do.
There is less need to go wider in a larger economy, especially when it can be more efficient, lucrative and easier to go deeper instead.
Mark Loveys 