A one-man software vendor that serves my wife’s company (which is, as they say in the game show business, a major pharmaceutical company) has about 40 clients. That doesn’t sound like much until you realize that many of these clients are other billion-dollar pharmaceutical companies.
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The secret to his survival is the extremely vertical focus of his software, which is used in the field of reproductive toxicology. There are a handful of users in each of these companies who rely on this application.
The advice that resellers or CPA firms should specialize is nothing new. But in an era in which some traditional services and core accounting products are as common as French fries at fast food outlets, vertical markets are as important as ever. In fact, most software vendors are betting on the growth of specialties as they broaden their product lines.
There’s no secret to the benefits of specialization. Specialization maximizes value-add and minimizes competition. Put simply, you can be quite happy as a big frog in a small pond, or as a big firm in a small niche.
Of course, you need to be a very knowledgeable frog to serve that pond. Yes, specialization has advantages, but it has its requirements. A reseller or accountant must have a far greater understanding of the client’s business needs, culture, and jargon. There’s nothing that labels someone an outsider more than using the wrong terms. It’s a sale killer that can make a supplier look amateurish.
One danger is that a vertical ceases to be vertical. When more competitors crash the party, the value-add decreases and good old-fashioned price competition kills the margins. Also, there’s always a danger that a supplier will begin offering the functionality. This happens a lot in software.
There’s no shortage of specialties. Having talked to a reseller that has begun specializing in tailoring accounting software to the needs of zoos, it’s hard to imagine that anyone who tries will be unable to find a market to succeed in.
While accounting underlies all niches, specialization requires going beyond number crunching. It demands knowledge of a business’ needs, and ideally, the way in which operations can be improved. Those selling software or services must become true business consultants.
You may need to not only measure yield from a hundred pounds of fish or the number of crickets consumed by zoo animals, and milk prices, but also to know how to improve yield, whether the animals will eat live or dead crickets, and that raw milk is measured in pounds. And you need to know what the competition is doing better than your client, who the major suppliers are, and where to get information. Then, everything needs to be turned into numbers.
So if you’re thinking of getting narrow, you can have a good business. But you’d better begin studying. It’s a long exam.
Robert Scott — Editor
|The Mid-Market Battle|
Who will dominate accounting software’s mid-market. We can’t give you the winners. But this month’s Accounting Technology gives you a first-hand view of the competitors and their assessments of their own strengths and weaknesses.
Interviews with executives of the top players reveal the directions that companies expect to take.
In the "Certification Dilemma," Senior Editor Richard McCausland examines the issues facing technologists who must spend money and time to obtain certifications required by software vendors. Meanwhile, McCausland also looks at tax planning software. What tools are coming into the market?
Associate Editor Carly Lombardo writes about time and billing software, a field that continues to have new entrants despite the general consolidation. What are the newcomers offering accounting professionals?
Finally, reviewer Wayne Schulz takes a look at leading not-for-profit accounting software packages. It’s a hot market and you need the right tools.