How Low Should You Go

A vertical segmentation strategy is not the most glamorous way to approach the small business market, but it can work.

Industries are classified by a system called North American Industry Classification System (NAICS) codes (formerly SIC or Standard Industrial Classification codes). Each industry falls into a category defined by a series of levels. For instance, let's say you want to go after law firms as a vertical within the small business market. Law offices are found in the two-digit NAICS codes under code 54, "Professional, Scientific and Technical Services." However, if you stop at the two-digit level you also get everything from accounting firms to advertising agencies. Go to a four-digit level and you get "Legal Services," but along with law offices, you get "Title, Abstract and Settlement Offices," too. Not until you go to the five-digit level can you actually zero in on lawyers (see Figure 1.5).

So how low should you go? The key is to understand the NAICS codes and know exactly what you're getting. You need to weigh the benefits of drilling down against the cost and time incurred to do so.

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