When creating a new product, one of the most important strategic decisions a startup can make is selecting the right vertical market to point all development and marketing resources towards.

Even when the product or service might have a broad application over multiple customer segments, the challenge of evolving from zero is so incredibly hard that it is a rare startup able to “cross the chasm” and get enough adoption across diverse users to reach true scale needed to become a successful company.

I felt that pain myself when starting TriNet. Since any small business could have used our offering, I initially made the rookie misstep of trying to sell into the general small business community in my local area.

Big mistake. We struggled mightily our first 18 months and it was only after adopting a narrowly targeted vertical approach that we began getting traction.

The segment we chose to concentrate all of our attention on were emerging tech companies backed by venture capital.

We got there not because there was anyone on our team with relationships or knowledge base in tech, but because we went through a disciplined review of different market segment candidates.

Each vertical segment considered was rated on the following four dimensions:

• Is the market segment emerging and evolving? We knew that working with customers who were going through lots of change provided a pathway to develop deep vertical market knowledge that our much larger competitors were not likely to build a customized offering around

• What macro trends would sustain long term growth of the segment? Going after future equity rounds would be tough unless there were plausible forces powering growth in our selected vertical and it was projected to be large enough to support a sizable market opportunity for years ahead.

• How much pain does the customer have that our solution addresses? We knew we could get pricing power if we found a segment that our offering addressed multiple pain points – especially when the pain was being felt directly by the decision maker who would be hiring us. This pain point analysis is also closely related to the competitive landscape since we had to examine how the pain was being addressed in the target segment with existing options. (At the time, there were no other bundled HR solutions available, TriNet helped create that category).

• How much do buyers in the vertical talk to each other? At the time we had zero marketing budget, I was the only sales and marketing person and our offering has a high ticket price. By selecting a vertical where prospects had some interactions with other, it helped us get over the critical credibility hump – thus resulting in a shorter selling cycle. In essence, if we had good references from a similarly situated prospect or a trusted advisor, that credibility carried right into every step of the sales and closing process as we could almost always find someone the prospect knew. [Even though TriNet is B2B, for those in a B2C world you would still think through how happiness of existing customers could find clear pathways to influence your prospects.]

Sticking exclusively to our chosen vertical market powered TriNet’s growth for more than 10 years, evolving us from a local, to a regional then national company.

While being too concentrated in early stage tech cost us dearly in the dot bomb, we did diversify and rebounded strongly just by loosening up to include a few additional segments who shared some common characteristics with our initial vertical.

More recently, my successor CEO Burton Goldfield brilliantly conceived and executed a multi-product line vertical market strategy that proved to be an attractive part of TriNet’s IPO story as it defines a roadmap for decades of growth ahead.

Call me a vertical market fanatic if you will. But as I invest in and mentor startups today, these same four criteria still seems useful in helping others sort through vertical opportunities so an early stage company can select a segment to own, then build upon for long term growth.