How Niche Software Companies Can Scale Sustainably

By Andrew Butt, co-founder & CEO at Enable, a modern, cloud-based software solution for B2B rebate management.

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As our lives become increasingly digitized, software providers are becoming more specialized. This allows them to enter untapped markets, develop targeted solutions that address a specific set of customer needs and forge strong relationships with those customers. As competition intensifies in niche markets, companies need to know how to scale sustainably.

While many software companies assume speed is all that matters when it comes to growth, this is a major misconception. Niche software providers should instead focus on honing their message for a clearly-defined market, rigorously measuring their performance, building a solid team and keeping customers happy. By emphasizing these fundamentals instead of pursuing growth at all costs, companies won’t just ensure that they’re minimizing customer churn and producing high-quality products — they’ll put themselves in the best possible position for long-term growth.

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The dominant ethos in the software industry has long been about explosive growth and overnight innovation. Of course, companies should seize opportunities when they arise and make innovation a priority, but the key to maintaining a successful business is securing consistent and sustainable growth over time. Here are a few of the best strategies to help niche software companies do just that.

Develop expertise in a narrow and clearly defined market.

While many advertising slogans insist otherwise, almost no product or service is for everyone. As a recent Deloitte report explains, there has been “increased fragmentation” among consumers, “with the so-called ‘average consumer’ now comprising distinct subsets of consumers who have increasingly distinct needs as well as competitive options to address their needs.” There’s no silver bullet that will allow companies to somehow reverse this trend and capture market share across demographic groups, which is why specialization is only becoming more important.

The first step toward effective specialization is determining the size of your market. Companies should consult subject matter experts in their field about the current state of the market — from its size to its growth trajectory. If there aren’t enough consumers in a particular market segment to conduct a representative analysis, you can expand your scope to encompass adjacent products, services and companies. But the goal should generally be to learn as much as possible about the narrow markets where you can maximize market share.

According to PwC, brand trust “determines buying decisions” for 70% of consumers, and one of the best ways for companies to generate trust is to demonstrate that they’re go-to experts in their fields.

This doesn’t just allow companies to access professional organizations that can help them develop better products (through honest feedback and collaboration) — it also helps them pinpoint their messaging and provides a platform to reach consumers. When companies have a specific and clear message, customers will know exactly what they’re offering and the purchasing process will become more streamlined.

Make sure you scale sustainably.

It doesn’t matter how quickly a company grows if it’s destined to go out of business in a few years. According to the most recent data from the Bureau of Labor Statistics, the five-year survival rate for American companies is around 50%. The ten-year survival rate is closer to one-third. These numbers have been fairly consistent for decades, and in an analysis of 3,200 “high-growth technology startups,” Startup Genome found that 70% of these companies failed due to “premature scaling.”

Premature scaling is deadly for technology companies because it can lead them to neglect existing customers, release products and services before they’re ready and spend money recklessly. One way to avoid scaling too quickly is to focus on key performance indicators — such as customer churn rate, employee retention, sales growth and market share — which will provide a more accurate idea of the company’s long-term health. Gartner reports that almost 50% of CEOs have “no real metric for a successful digital business,” which makes it much harder to track and maintain sustainable growth.

Finally, companies focused on sustainable growth have to avoid pushing employees too hard, which can lead to burnout. According to Gallup, two-thirds of workers experience burnout, which makes them 2.6 times more likely to look for a new job. Companies don’t just have to maintain open lines of communication with their employees about workloads and expectations — they also have to ensure that everyone is aligned on their vision, which will increase morale and make sure everyone is working toward the same set of goals.

Keeping customers happy.

While companies that operate in niche markets are trying to earn the business of a smaller pool of consumers, they’re also in a stronger position to cultivate long-term customer loyalty. This is because they’re providing specialized products and services that can’t be found anywhere else. Customer loyalty is vital for the success of any business, but it’s especially important for companies that operate in niche markets.

A KPMG survey found that three of the top contributors to customer loyalty are: product quality (74%), value for money (66%) and customer service (56%). The survey is a powerful reminder that companies should maintain consistent and open communication with their customers, especially about the quality of their solutions. By soliciting feedback, companies won’t just learn about customer’s pain points — they’ll also demonstrate that they take an active interest in customer opinions and value their input.

Additionally, KPMG found that when customers are loyal to a brand, 86% of them will recommend its products and services. Meanwhile, two-thirds of consumers say they’re likely to write a positive review online — one of the most significant factors in consumers’ purchasing decisions — after a positive experience. Beyond providing these experiences, companies should implement referral programs that simultaneously reward loyal customers who make recommendations and welcome new customers with special offers.

We’re only going to see more specialization in the coming years, especially in fields like software that are becoming an ever-larger part of our daily lives. If niche software companies develop unique, high-quality products and focus on scaling sustainably and keeping customers happy, they’ll put themselves in a strong position for future growth.

Young Entrepreneur Council (YEC) is an invitation-only, fee-based organization comprised of the world’s most successful entrepreneurs 45 and younger. YEC members…

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