EP 81: Corey Quinn_ Solo Episode_Full Video_Edited_v1
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[00:00:00] Agencies that specialize grow faster. Every vertical that's worth pursuing is being pursued. It's not going to be easy. It's going to require a lot of work. This decision will impact the next five to seven years of your life. It's never too late.
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[00:00:15] Welcome to the Deep Specialization Podcast, the show where we blend focus, strategy, and client intimacy in order to scale and simplify our businesses and our lives. I'm your host, Corey Quinn. Let's jump into the show. Hey crew, Corey here. Today, I'm going to give you three steps to choosing a vertical market for your agency.
[00:00:37] Now, this is a topic that. I love to talk about, I've been doing this specific work for a couple of years now and have worked with a lot of different agencies of different shapes and sizes and helping them to, wrestle with this concept of this idea of taking a vertical market approach and even further, like how do you do that effectively?
[00:01:01] And so I'm excited to bring these three steps to you within these are Some obvious things, as well as some nuanced. aspects to this process that I think are really impactful, that will ultimately help you to choose a vertical that will serve you for the long term versus let's say in six months, you realize, Hey, this was not the right thing for us.
[00:01:25] And you end up pivoting and losing all that time. So, I care about long term success.So. this process is very intentional. It's also, as I said, intended to help you to choose a great vertical market for your company, for your strengths, for your agency, so that you can have long term success.
[00:01:44] let's start by talking about a common myth when it comes to choosing a vertical market for your agency and really going deep with that. I call it deep specialization. And that common myth is that, it's something around the idea about, you know, by, focusing on, let's just say plumbers instead of all of home services as a vertical market.
[00:02:10] As a result of doing that, I'm going to be limiting my ability to grow and to do business and to. Ultimately reach the goals that I wanted to reach by starting my business in the first place, which is of course, in many cases it's around, creating the kind of lifestyle you want, having the freedoms that you want, making the type of income that you want, being able to be generous with other people.
[00:02:34] And you know, if, if, you've ever met a founder, which I'm assuming many, of you are founders listening to the show, I know that you have a very strong opinion about it. You know, what you're trying to create in your life and That bias, we have that human bias. it's a concept from behavioral economics called loss aversion, which is where the pain of losing something is somehow psychologically more powerful than the pleasure of gaining something, right?
[00:03:03] if you've ever had a gym membership that you rarely use, then you know what I'm talking about. Sure. You could save money by canceling that membership, but then you'd lose the potential of actually going to the gym.
[00:03:16] And as a result of this loss of version, this human bias that we have of worrying too much about, unnecessarily limiting your business's potential and your growth founders, what they end up doing is they don't fully commit themselves to a vertical. They'll may dabble with a couple I've been on hundreds of agency websites, and it's common to see, industries we serve and it's a pull down menu on the menu bar of their website.
[00:03:43] And of course you see. five, six, 10, 20 different verticals that they say that they specialize in, or they just stay a generalist, right? They decide not to have a specialization when it comes to an industry focus. that's where people end up most of the time when they're struggling with it.
[00:04:01] this limiting belief and the truth is, is that agencies that specialize grow faster. In 2023, there was a research report by Promethean Research, which is a specialist research company focusing on the agency space. what they found is that specialized agencies grew 93 percent faster. Then pure generalists and if you're a founder that cares about growth and achieving big results, then that's a pretty interesting stat.
[00:04:34] Plus a big benefit is that when you specialize through repetition, because by specializing and serving one audience, solving a specific problem over and over and over again, you have a true opportunity to master that craft. And of course that Mastery becomes your expertise, which builds your brand, which further separates you from your competition.
[00:05:02] it reminds me of the old Bruce Lee quote, I fear not the man who has practiced 10, 000 kicks once, but I fear the man who has practiced one kick 10, 000 times. There's another big benefit that I think is worth mentioning, which is that specialized agencies tend to command a higher premium when it comes to what they get offers from acquirers when compared to generalist agencies. And of course, this is because specialized agencies are inherently less dependent on the founder.
[00:05:35] And therefore they are more attractive to new owners. so if you were going to buy an agency, let's say you were an investor or you were part of a larger, agency,or maybe a holding group, and you wanted to buy an agency, you would probably pay more for an agency that was completely self sufficient. If you were going to go into the market and acquire an agency that was fully founder dependent, dependent on the founder for the sales, they were the source of all the sales. They closed the sales. They were, the head of operations. Every client had their cell phone number. if you think about the asset that this founder has created, it really is a business revolved around them.
[00:06:19] And it becomes of course a much less attractive asset to buy from an acquirer or from an investor's perspective, because there is so much risk, in, that founder, you know, what happens if they're no longer involved, if they decide to move on with their life, you know, what really have you bought, versus of course the specialized agency that may have systems and processes and people who can be quickly trained, fill vacancies and whatnot.
[00:06:46] even at the leadership level, even at the highest level of the organization, when you are a specialist agency, there's a higher propensity for you to be able to, be much more system. And, process driven you know, there's plenty of examples of agencies that have successfully transferred and transformed from being a generalist to a seven figure, sometimes a high seven figure, an eight figure agency, that specializes in a vertical market.
[00:07:14] The first one, of course, that comes to mind for me is Scorpion. So I used to work at Scorpion. I was their chief marketing officer from 2015 to the end of 2021. when I joined, we were in primarily one vertical market. Technically too, but we were focusing on attorneys and hospitals, and then we were able to grow that from there to home services and medical practices and franchise businesses and whatnot, that actually helped us to propel all the way to a nine figure agency.
[00:07:41] We were doing in about 200 million, but there's others. There's, you know, blue Corona rhino strategic solutions. I lawyer marketing. Cardinal digital marketing market, my market, and so on and so forth. In fact, of those businesses, their founders have been guests on this show.
[00:07:57] If you're interested in any of those stories from being a generalist, going to a specialized vertical focused agency, those are all available here on the podcast. And of course, the good news is that it is not too late for you to specialize. It's never too late. Maybe you built your business up as a generalist and that's worked for you for a while as it does for many.
[00:08:20] And you realize that, hey, it's time for me to specialize and get some of these benefits that we've been talking about here. So before I get to the three steps, I want to share with you some concepts to help you identify what makes a good vertical market to target as an agency. And the first one is revenue.
[00:08:43] When you're looking at different vertical markets and particularly serving local service businesses, uh, you want to make sure that the average business in that vertical market is making a minimum of a million dollars, not the most successful business in that industry, the average industry.
[00:09:03] And here is why.
[00:09:04] If you use a rule of thumb that says 10% of a company's gross revenue should be invested in sales and marketing, it could be less, could be 6%, 7%, but we'll use a rule of thumb of 10% if they are a million dollar company, the average business in this vertical market that you're considering, or you have targeted is doing a million dollars.
[00:09:29] That means, round numbers, they're going to invest a hundred thousand dollars or 10 percent of a million into their sales and marketing. And as a digital marketing agency, you're going to obviously, Help them spend some of that 100, 000 over a 12 month period. of course that translates into 8, 300 a month.
[00:09:50] And when you look at things like website and, reputation management and PPC and SEO, and all of a sudden that marketing budget gets dwindled down pretty quickly. So you want to make sure that the businesses have enough money on average to have a decent or a healthy. marketing budget that makes your job much easier
[00:10:11] clients that are much more pleasant to work with. The next one is community. there are verticals that have a tight knit community aspect to them. The reality is, verticals are kind of like villages, right? Everyone kind of knows everybody else. Everyone's in like a one to two degree separation, from each other.
[00:10:29] And you want to use that to your benefit, of course, by providing excellent services and providing great results, for people in that vertical, your reputation will spread. And so you want to find those verticals that happen to have a really tight knit community, and industry people who hang out together a lot because the word about you will spread more quickly, which is a benefit.
[00:10:50] obviously you want to find verticals that. have a lot of jargon, right? They use a lot of inside words. I think about one of the vertical markets that we targeted at Scorpion was the franchise industry, and they've got a whole plethora of different terms and acronyms that they use that are really relevant to their business.
[00:11:10] That if you are Not from that business or you're not involved in that business as a specialist, it's pretty easy to notice, you know, that you don't know these terms, right? And so you want to be able to find a vertical that has a lot of jargon so that you can learn the jargon and become, an insider through using that language.
[00:11:30] It's a good signal. Obviously you want to find verticals that are growing. Okay. it makes it much more difficult to, be successful. it's worked regardless of whether or not the vertical is expanding or growing or not. However, for those verticals that are shrinking, it makes it more difficult.
[00:11:49] Budgets are shrinking. People are getting laid off versus those that are growing. the one that comes to mind is cybersecurity. You know, it's growing like 10 percent per year, every year. It's a very, very rapidly growing, industry. So when you're in that industry, there's a lot of investment.
[00:12:04] There's a lot of dollars, a lot of companies, you know, wanting to grow and eager to grow to capture some of that growth as well. So making sure that your target verticals are growing would be a positive thing. One other aspect that you want to look at is are there professional requirements in order to operate a business in this industry?
[00:12:23] So an example is, my wife is a physician, she's a doctor, so she went to high school and college and then, medical school and then her fellowship and it took her, many years. many, many years to be able to get to the position where she can practice her career, her craft, as a practitioner, as a medical practitioner.
[00:12:42] And of course she's very committed to growing her practice. this is who she is and this is part of her identity in some respects, being a doctor. And so she's very committed versus on the other end of the spectrum where you have industries where you have no professional requirements, you typically have what you typically find, or it's more likely to find, business people or business owners are less likely to invest in their marketing.
[00:13:04] they're more flaky changing brand names and whatnot. it's just, more transient in some respects. So ideally. They have some level of professional requirements, not absolutely required for that. There's certainly, many agencies focusing on verticals that don't have this, that are very successful, but that's a, that's a nice thing to look out for.
[00:13:24] And then the last one I'm going to mention here is associations and conferences. There is a great website you could check out called the directory of associations. com. you can use that as a resource to see, if you're thinking about targeting a specific vertical market. You want to make sure that they have these associations and conferences and events, because these are obviously opportunities for you to engage and interact with these, these folks.
[00:13:50] And if they don't have associations, uh, or conferences and events, then it's likely that they are not significant enough of a, um, of a vertical. There's not enough infrastructure there that may be a signal that may not be worth pursuing, um, as a focus vertical. We'll give you a quick example that applies to all of these.
[00:14:11] If we look at the world of dentistry here in the United States, there's, you know, 191, 497 practices in the United States. They have a lot of associations, everything from the American Dental Association to regional associations and so on and so forth. You certainly have to have a, degree to become a dentist, right?
[00:14:33] There's a professional requirement as well as, um, you know, there's good revenue potential in the industry there. There's some consolidation there with, um, with venture capital, but there is, a demand for dentistry. That's never going to go away. It may change and evolve over time.
[00:14:49] Uh, and surely there's a close knit professional community. there are Facebook groups with tens of thousands of dentists. There's great conferences. Uh, there's one called the greater, dental, something of New York that we used to go to. And it's literally like football fields of booths and dentists everywhere.
[00:15:05] I mean, there's just, you know, tens of hundreds of them, hundreds of them. Those are some key characteristics to keep in mind as we step into this three step process. Now before I share what these three steps are, I want to let you know that where people get this process wrong, these three steps is they actually skip steps one and two and they jump to.
[00:16:14] Step three, and you'll see why here in a minute. So we're going to start with step one, which is you want to gather the wisdom that already exists within your business, right? So if you're going through the process of identifying, which verticals do we want to target? what you really want to do is you want to actually pause and take a look at your actual business, your existing business.
[00:16:37] And what people forget, is that there's a lot of wisdom that is already available to you within your business. So what you do here is in order to sort of capture this wisdom and harvest it is you want to take a quantitative approach, which means you want to look at the figures, the math that exists.
[00:16:58] And the way you do this is you go into your book of business and you want to group your current and past clients by vertical. So if you've had, let's say 50 clients over the last couple of years, You want to group them by dentists and attorneys and manufacturers and, you know, cybersecurity software companies, whatever those verticals are for you.
[00:17:18] You want to group them by vertical. And then you want to look at the data, comparatively vertical against vertical. So things like what is the average revenue per client per vertical, right? What's You also want to look at things like retention rates, Retention rates are indicative of product market fit, meaning the services you provide, what you're good at doing is also really providing a ton of value for your clients. so much that they stay with you. you also want to look at things like which verticals do we get the most organic, inbounds from, or from referrals?
[00:17:52] where are we already known? where do we have some evidence of true impact for the vertical market? In addition to quantitatively analyzing your book of business, you also want to look at it from a qualitative perspective. this is really about going into your business and talking to your team and understanding what their preferences are.
[00:18:11] And you may be surprised when you go and talk to your sales team about which vertical market they like selling to. if you have a sales team it's likely that they're going to want to sell to people who they are successful selling to. In other words, people who buy from them psychologically salespeople typically have more confidence, more momentum when they're selling to a specific type of client that they know that they're going to be successful.
[00:18:40] And so there's some evidence there that maybe some, of the verticals that they're selling into, they just feel like it's an easier vertical to sell into, to better fit, they like selling to them. All those are really interesting. Sort of qualitative data points.
[00:18:56] And then you also want to ask your account managers. you know, the people who are managing your clients on a day to day basis, who do they prefer to work with, out of all the book of business that they're working with, maybe they're working across verticals and with a bunch of different types of clients and verticals, which ones do they prefer to work with?
[00:19:14] And by the way, account managers. Like to work with happy clients, And want to work with the unhappy clients. Cause those are typically, harder to deal with. And there's some emotion there. The happy clients, ones who are just thrilled to be a client, getting great results, well, those are the ones that the account managers typically, gravitate towards.
[00:19:33] And so you want to understand which of your clients, according to your account managers are getting the best value. So that's step one is really going into your business. And harvesting the wisdom that exists, that's a really great evidence that you can go and make a high quality decision ultimately, using that data versus, you know, just using, intuition, let's say.
[00:19:54] Step two is I want you to ask, do I give a damn?
[00:20:00] So what you want to do is you want to gauge whether you actually care about the vertical market and the people within it. Today and in the world we live in, you know, empathy is an important ingredient. And when you truly care about your clients and their industry and the struggles that they have, that will actually separate you from your competitors.
[00:20:23] We live in a transactional world and that empathy is that differentiator. If you're able to express and demonstrate empathy over, certainly over a long period of time that will, help you to, really stand out in the market as someone who is a special, resource. For, for these folks in this industry, one client of mine was, an agency that had been around for about, let's say five to seven years and they'd done work.
[00:20:52] They did brilliant work. They do really great lead gen using digital marketing and they're very sophisticated sort of strategies. And they've been doing work from everything from entertainment venues to professional sports teams, to healthcare companies. And, you know, we went through this process together and the vertical that they ultimately chose was something that's called digital health, which is, healthcare, like, apps and things of that nature, that are related to healthcare, but also have a very strong digital aspect to it.
[00:21:23] And the reason why. Was the founders were both very, um, they cared a lot about promoting health. they lived healthy lifestyles, and they wanted to, promote the, healthy. sort of living approach in their company. And they also wanted to support other businesses that did that.
[00:21:43] It really helped to lighten them up. And that really excited them, uh, that they could build a whole agency around this idea of digital health. And so that was a real clear, um, win for them. They definitely give a damn about the industry that they're targeting. There's another example of, uh, Chris Yano. Uh, he's the founder of Rhino Strategic Solutions.
[00:22:04] When I interviewed him and I asked him, you know, why did he choose home services as a vertical to specialize in? And he said, it's because in part that he grew up on a farm and, you know, he just could easily relate to blue collar workers. He would just, those are his people. Right. And so he, he found that, uh, an easy, market to, to really, you know, You'll see himself spending, you know, most of his career in.
[00:22:27] So I wonder what that is for you as you're thinking about these vertical markets, maybe you've gone through and you've harvested some of the data, uh, and had some of the questions in your organization about where, where do we, you know, which, which vertical markets are our strongest, our best, you know, maybe you're at that point now where.
[00:22:46] I want to challenge you to think about, do you give a damn about this vertical market? Can you see yourself working with these folks for a long period of time? So that's step number two, Number three is I want you to run the numbers on the vertical.
[00:23:01] maybe it's a small handful of verticals that you've identified through steps one and two. what most people do is they go right to this step. Number three, they want to look at the size of the market and see how much revenue is available. Of course, by skipping steps one and two, you end up choosing a vertical based on, I think, You know, not the best reason, which is, you know, I can make a lot of money.
[00:23:23] of course, every vertical that's worth pursuing is being pursued. And so it's not going to be easy. It's going to require a lot of work, which is why steps one and two, uh, come before step three. you know, as I mentioned when I was opening up this episode, is that a lot of founders.
[00:23:38] they're skeptical, um, of specializing, of cutting off, you know, different markets by specializing, uh, due to that, so that the, the loss aversion, human bias that we all have. Uh, but it's when you run the numbers after doing steps one and two, you run the numbers on the verticals that look good, um, to you at this point, and that's when you really get committed.
[00:24:02] So I'm going to give you an example. Of what I mean by this. if you look at the industry, the plumbing industry in the United States, there are roughly 157, 000 plumbing businesses in the United States, right? These are plumbing businesses that, you know, various shapes and sizes that, that serve residential customers.
[00:24:24] People like you and me, you have a house, we've got some plumbing and you know, we call them from time to time. And so if let's say that as a result of doing step one and step two, plumbers was one of your vertical markets. you want to look at not only the total addressable market or the total size of plumbers, but I also want you to think about if you were able to just capture 1 percent of the vertical market of plumbers, that would be 1, 570 plumbing businesses as clients.
[00:24:53] Now that's a lot of clients. for some, not a lot for others, but, if you were able to generate those clients, 1%, just one tiny little sliver of the market, 1%. As I said, you'd be at 1, 570 plumbing clients. And let's say on average, you make 10, 000 a year in profit, or maybe just in top line revenue.
[00:25:13] You would have a 15. 7 million agency. Solving the same problem for the same audience over and over and over again building up your specialization your expertise And getting really really damn good at it building a great reputation around it So I want you to go out and find some data about each of the verticals that you arethinking about targeting, a good resource for this that I use, I love using is IBIS world.
[00:25:41] ibisrule. com and go out and find what's like the total addressable market. All right, what's the total number of businesses, uh, that you could reasonably sell to? And then my rule of thumb is to multiply the size of the vertical, the number of businesses in that vertical by 20%. So that's the Pareto principle, the 80, 20, we're assuming that only 20 percent small percentage of the total addressable market is gonna be really the center of the bullseye for you.
[00:26:09] Then I want you, after multiplying that by 3%, I want you to multiply that by the average revenue per client in that vertical market.
[00:26:18] So again, it is go out and find the total number of businesses that you could potentially sell to in this vertical market. Multiply that number by 20%, then multiply that number by 3%, multiply that number by the revenue, the average annual revenue of a client in this vertical market. What that will result in is that you get, a revenue number that you should expect.
[00:26:40] to be making as an agency from this vertical market in three years. now, if that number ultimately excites you, then that vertical market is probably a pretty good option for your agency. And if not, then you probably want to find a different vertical because this number has to really excite you.
[00:27:04] because, you know, look, there's a lot of work ahead. it's not going to be easy street. Uh, it's a longterm commitment, but, the promise of the revenue, combined with the care and, the evidence of you, do great work here, really help you as a founder to. What I consider to be fully committed.
[00:27:26] That's when you typically get a founder who is really, really committed to doing this and they're no longer worried about what if,
[00:27:34] all right, I want to wrap up here with a couple of common pitfalls that you want to avoid. Number one is avoid choosing a vertical market that is too small. So any vertical market that's beneath 2000 businesses, probably not big enough, to really focus in on, there's probably not enough revenue there.
[00:27:54] Not enough opportunity inherently in that vertical market. just by the nature of the small size of it. The second common pitfall is picking a declining industry,
[00:28:06] You do not want to be, focusing in on an industry that's contracting because it makes it that much more difficult, for you to be successful. the next common pitfall is selecting a vertical that you genuinely don't care about,
[00:28:20] You're going to be spending a long time with these folks. You're going to be going to their conferences. You're going to be meeting with them. You're going to be building direct relationships. You may even find some fantastic lifelong friends in this industry. And if it's just a vertical market, you cannot see yourself or get excited about spending time with, then I would probably reconsider that vertical.
[00:28:41] And the last common pitfall is not validating the market size and potential. You know, maybe you're making a decision based on what your competitors are doing or what everyone's talking about online, or, even what AI is telling you to do, I would prefer that you go out and I recommend this obviously is to go out and do your own market sizing research to really understand what's available and then what's the revenue potential for you specifically.
[00:29:11] Okay, as we wrap up a couple pieces of advice, take the time to validate your choice, you know, go through these steps, have these discussions, do the research, run the math, do the numbers. Because once you do this, you will have the clarity that you need, which will lead to the confidence that is required to really move into this vertical approach.
[00:29:33] this decision will impact. The next, you know, five to seven years of your life. So I want you to really think deeply about it and take your time to make a high quality decision as a next step for, for you listeners. You can download a workbook that will help you along this entire process, along with the full audio book.
[00:29:53] Version of my book, anyone, not everyone. that's at anyone, not everyone. com. I cover this process in greater depth in my chapter five. And so by going to anyone, not everyone. com, you'll get access to the workbook and the audio book for free. So again, it's anyone, not everyone. com. Thanks so much.
[00:30:14] And I'll talk to you soon.
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