Vertical specialization: How to choose the right client industry for your agency

Written by: Karl Sakas

We know why it’s important for agencies to specialize in a client industry. Vertical specialization makes business development much easier, since clients like hiring specialists. Specialization also makes it easier to do thought leadership marketing, which helps you become an in-demand agency.

Narrowing your focus allows you to build better project management workflows. Specialization helps you close more clients, since your success stories will all be highly-relatable within the industry.

Ultimately, specializing in a particular client industry gives you an edge. For your prospective clients, there are too many potential agencies out there—they want to narrow things down. Your agency can either stand out as experts in a narrow field, or fade into the sea of thousands of generalist agencies. In short, specialize or die.

Now, the question is how to choose a client industry. This is an in-depth article—click in this table of contents to jump to the appropriate section.

Specializing in multiple areas

Many clients ask me whether they should stick to just one vertical. I recommend choosing one to three, but it’s important that you choose based on the right criteria.

For agencies, the ideal vertical has the following qualities;

  1. It’s lucrative now.
  2. It’s growing in the future.
  3. You can help clients get results—and you can show them they’re getting results.
  4. You have experience, ideally as a public portfolio of examples and case studies.
  5. You like the industry, and you like working with clients in the industry every day.
  6. Clients gladly pay money for help (including strategy help, rather than merely “do this” implementation).
  7. Clients have lots of money flowing through.
  8. You have an opportunity to stand out from the current competition.
  9. The structural aspects of their industry mesh with you (including decision-making processes, regulatory environment, etc.).

Let’s dive deeper into these criteria.

What to look for in a client industry

You’re ideally excited about producing content in the client’s industry. If not, you’re going to get bored. For instance, I’m fascinated by finding ways to make agencies operate better. I have a backlog of hundreds of draft blog posts in WordPress; I have plenty to share.

Cashflow is big. I like helping retainer-based agencies because they always have money coming in. When agencies are project-based, that can lead to start-stop situations on consulting help, where they need help but can’t afford it until they get another client payment.

Liking the industry itself is helpful. For instance, I’d never want to help a tobacco-related client. Alcohol, yes, but tobacco can’t be consumed safely/responsibly. There are agencies that specialize in car dealers; I have no desire to work with car dealers. In contrast, I really like agency owners!

There are no structural problems. A client in Colorado has a lot of real estate experience. He knows the industry and his agency has a big portfolio of real estate marketing projects, but residential real estate agents are cheap marketing clients, because all the marketing spend comes out of their personal commission. This is a structural problem.

Structural considerations: Three examples

Financial services, healthcare, gaming, and other highly-regulated clients: It’s harder to break into as an agency, but easier to succeed at. You have expertise and know all of the rules, so you can say “We know pharma; our ads will pass FDA scrutiny.”

SaaS firms: These companies need traction, so they tend to have high expectations. They also tend to collect more data, so you have more information to work with. When they have high growth goals, they’re likely to measure every marketing tactic to see what works and what doesn’t.

E-commerce clients: Working with these clients means you’ll be getting midnight phone calls. This is especially true on the development side, but even if you’re in marketing or strategy, e-commerce clients tend to see problems as crises. This is understandable since a forgotten email could cost them $40K in lost sales.

When you’re stuck on industry ideas in the first place

Be careful about committing to a client industry that you’ve never worked in before—that’s a risky move, because you don’t know the people or the expectations.

If you’re spitballing, here are three places to consider:

  • Browse book categories on Amazon
  • Explore the magazine section at the airport newsstand
  • Review SIC codes—there are more industries out there than you might realize

Breaking into a new industry

There are six things you need to think about when breaking into a new industry;

  1. Do your clients expect agency specialization?
  2. Do clients in your target market(s) reward specialization?
  3. Is the market large enough to handle vertical and horizontal specialization?
  4. What’s the competitive landscape, agency-wise?
  5. Clients always need help—but what degree of help do people want to pay for?
  6. Do you like people in the vertical?

Breaking into a new industry is a problem if clients expect specialization, and less of a problem if they don’t care. For instance, biotech companies want past biotech marketing experience, whereas tech companies are more agnostic about past experience.

With Sakas & Company, I made a structure-based choice in focusing on independent marketing agencies, not owned by holding companies. There are one or two stakeholders, not a board and a multi-tier executive team.

By picking limited-stakeholder clients, I know if things will move forward in 1-2 phone calls with the owner. My clients inherently have no boss over them, whereas a marketing manager at a large company could have five layers of people above them that can veto their decisions. Back when I was an agency project manager, I worked with those big clients and marketing managers, and they were frequently miserable.

Do clients in your specific target market(s) reward vertical specialization? Although specialization tends to work better, I see some agencies succeed through horizontal specialization alone. Typically, this is because they provide highly technical services (rare, complex, and expensive), such as mobile app development, marketing automation, and pay-per-click (PPC) advertising.

Lead generation isn’t incredibly technical, but it is a niche topic. When I wrote my book on public speaking for agency lead-gen, I chose to focus on agencies, since that’s my target market for consulting and coaching. However, I could change 10 percent of it and it would apply to lawyers, accountants, and most other professional service providers. Selecting that niche market has helped me focus my book and gain more target-market readers than if I were to focus on just lead generation for everyone.

Is there a large enough market to handle vertical and horizontal specialization? My previous business was doing marketing consulting for tourist railroads that gave old-time train rides. I worked with a number of the 200 prospective clients in the U.S., but ran into a challenge around “need” vs. “want.” They all needed marketing help… but not all of them wanted to pay for it.

In contrast, there are somewhere between 10,000 and 80,000 agencies worldwide. I focus on digital agencies, but that still leaves more than 20,000 prospective clients. My most-experienced competitor has worked with 800 agencies in the past 20 years—so if after two decades, he has a roughly 8 percent market share, there’s still a lot of opportunity in that space.

What is the competitive landscape? I estimate that there are 40 to 50 agency consultants out there, but many specialize within that specialization so they aren’t a homogenous competitive cluster. We often refer work to each other based on specialization.

What degree of help do people want to pay for? Look for clients who want help in the strategy sense, instead of just execution. This will help them to see you as experts, versus order-takers. That means you’ll have to excel at what you do.

For example, let’s consider public speaking coaching. I hired Alan Hoffler in NC for his 2-day $1,000 course after taking his nearly-free half-day workshop. I recently flew to Boston to take Tamsen Webster‘s day-long advanced workshop. I’ve spent a few thousand dollars on video-related services. I’m also in a speaker mastermind group. In contrast, someone at an earlier stage might go to a weekly Toastmasters meeting or buy my 2015 book on speaking for agency lead-gen.

You can use my “Think, Teach, Do” agency services framework to explore the type(s) of help people want.

It’s important for you to like people in the vertical. I have some clients whose agencies work exclusively with lawyers, and other clients who would never want to work with lawyers. I really like agency people, and my consulting focus lets me work with them all day long. They also appreciate my help; business comes naturally to me, and I can explain it in a way that connects.

Expanding into similar industries

You can look at similar industries to discover new, relevant markets and how to reach them. For instance, marketing within professional services is similar. Marketing for an accountant is similar to marketing for a lawyer, and both are similar to marketing for an architect (apart from architects having to do a lot of RFPs).

Industry example: Marketing for healthcare practices

A client mentioned planning to focus on healthcare practices. I suggested they dig deeper—not all healthcare practices are alike.

For instance, by focusing on practices that do elective (discretionary) procedures, they could find practices that didn’t depend on insurance reimbursement. These practices need marketing help to get people in the door (e.g., cosmetic dentists, plastic surgeons, laser hair removal). In contrast, an oral surgeon might be 90% referrals from dentists, and they don’t need to hire a marketing agency.

Another client agency specializes helping HVAC repair firms. This category is “home services”—the agency could leverage this experience to help clients in pest control, lawn care, plumbing, kitchen cabinet refacing, tankless water heaters, and deck awnings. Why? Because for home services, the marketing message focuses on making the customer’s life easier and improving their property values—yet a plumber isn’t competing with a pest control firm.

Moving Forward at Your Agency

Think about the structural implications for your current new-industry candidates. What will it mean to serve those industries? How might you stand out as an expert in those industries?

Ready to pick a specialty for your agency? See my followup article on choosing a vertical specialization!

Question: How do you handle industry specialization at your agency?

Image credit: Choosing photo by Susanne Nilsson, via Creative Commons

Book Cover: "Work Less, Earn More" by Karl Sakas

Are you feeling overworked and underpaid?

As an agency owner, it doesn’t have to be that way.

The solution? Read my book: Work Less, Earn More: How To Escape the Daily Grind of Agency Ownership.

You’ll get my step-by-step process to reclaim your work-life balance and get paid what you’re worth. And you’ll get access to an in-depth companion workbook, to cement your progress.