But before we dive into these four elements, let’s first explore the importance of verticalization.

The power of vertical market specialization

By focusing on a specific industry or niche, agencies can streamline operations, improve sales efficiency, and establish themselves as trusted experts.

Here’s a breakdown of what that means:

• Simplified operations: When you serve a specific industry, you understand the unique challenges and needs of your clients. This allows you to tailor your services, messaging, and marketing efforts, making your operations more efficient. As Quinn explains, "When you become a vertical market specialist, it's like you have a map. It simplifies everything... You know which lists to buy, which conferences to go to, which associations to join..."
  
  
• Enhanced sales efficiency: Serving a specific industry also leads to a more predictable sales process and the ability to escape ‘founder-led sales’. You can develop repeatable sales scripts, case studies, and proposals tailored to your target audience. This not only saves time but also increases your chances of closing deals that are not dependent on you as the founder.
  
  
• Increased trust and credibility: Becoming a vertical market specialist positions your agency as an expert in your chosen field. This builds trust with potential clients and can lead to higher conversion rates. 

The million-dollar question: How do you choose the right vertical - Four critical elements

1. Leverage insights from your existing data and team

Before jumping into a new vertical, the first step is to gather insights from your existing clients and team members. Corey Quinn suggests that your agency is probably sitting on a goldmine of information: “There’s a wealth of data waiting inside your agency,” he says.

Analyze your client data: Whether it's lawyers, plumbers, eCommerce businesses, or whoever you’re serving, group your current and past clients by vertical market and examine key metrics:

• Revenue: Identify which verticals generate the most income.
• Retention: High retention in a specific vertical indicates your ability to solve problems and deliver value.
• Profit: Consider which verticals bring the most profit to your agency.

Interview your sales and client services teams: These interviews will provide qualitative insights into working with different verticals:

• Sales team: Learn which verticals they find easiest to sell to and why.
• Client services team: Understand which clients they enjoy working with the most, as happy clients often create a more fulfilling work environment.

2. Align with your vision and values

Your vertical market should not only make sense from a business perspective. The next crucial element is ensuring that the chosen vertical also aligns with your vision and values as the founder:

• Personal interests: Select a vertical that genuinely interests you and aligns with the type of business you want to build. For example, if you’re passionate about sustainability, you might find more satisfaction in working with eco-friendly companies. Bottom line: the vertical you choose should fit both your business goals and your personal values​.
• Professional vision: Consider whether the vertical supports your vision for the agency's structure and operations. This could involve factors like the desired level of automation, the balance between technology and personal interaction, and the overall scale and scope of the business.
• Values alignment: Choose a vertical whose values align with your own. This fosters a sense of purpose and authenticity in your work.
• Product compatibility: If you plan to develop software to support your services, evaluate whether the vertical aligns with your software development goals. For example, if you aim to create lead generation software, focusing on eCommerce businesses might not be the ideal fit.

3. Evaluate market potential and scalability

The third critical element involves assessing the market potential of the vertical or making sure there’s actually a market for your services in that industry. It's essential to ensure that your efforts are directed towards a market with sufficient growth opportunities:

• Total addressable market (TAM): Research the size of the total addressable market for the vertical, which represents the total number of businesses in that industry that face the problem you solve and can afford your services. Utilize resources like IBISWorld to conduct this research.
• Estimate your potential market share: Quinn suggests assuming a potential market share of 3%. This means aiming to acquire 3% of the businesses in the target market as clients within a timeframe of 1 to 3 years.
• Calculate potential revenue: Multiply the estimated market share by the total number of businesses in the TAM and then by your average annual client revenue to project potential earnings. This exercise helps you determine whether the vertical offers sufficient financial opportunity to achieve your goals.
• Evaluate scalability and repeatability: Focusing on a specific vertical allows you to develop specialized processes and expertise, making your services more efficient and profitable over time.

4. Empathy: The secret sauce to vertical specialization

Beyond the three core elements outlined above, there's often overlooked crucial factor that sets successful agencies apart: empathy. Simply put, that means genuinely giving a damn about your clients and the industry they’re in. In a competitive landscape marked by distrust, demonstrating genuine care for your target audience and their industry can be a powerful differentiator:

• Building trust: Many businesses have had negative experiences with agencies, leading to skepticism and resistance. Empathy helps bridge this gap and establish trust.
• Going beyond lip service: True empathy goes beyond simply expressing concern for the industry's challenges. It involves taking concrete actions that demonstrate your commitment to their success.
• Becoming part of the solution: Engage in activities that benefit the industry as a whole, such as supporting relevant causes, participating in industry events, and offering valuable resources. Position yourself as a partner invested in their long-term well-being.
• Competitive advantage: Authentic empathy becomes a significant competitive advantage, attracting clients who value your genuine understanding and commitment to their industry.

Quinn highlights the example of Phaser Marketing, an agency specializing in the construction industry. Founder Luke Eggebraaten demonstrates empathy by addressing the industry's "5 to 2" talent gap problem through initiatives like a scholarship fund for students entering the trades. These actions establish his credibility and differentiate him from competitors who merely pay lip service to industry concerns.

Final note

Choosing a vertical is more than just picking an industry you think will make money. It’s about leveraging the insights you already have, aligning with your long-term vision, and making sure there’s enough potential in the market. And, of course, the secret sauce is empathy—actually caring about your clients and the industry they’re in. As Corey Quinn says, when you get all of these elements right, verticalization can take your agency from good to great. 

For a more in-depth discussion on this topic, take a look at Corey Quinn’s video and Duda’s webinar featuring Corey Quinn.