Sunday, April 14, 2013

Ideas we'd like to invest in: Industry-specific SaaS solutions

Following my post about electronic signing I'd like to describe another area that we'd like to invest in. It's not a specific idea this time, rather a category of startups that we're very interested in:

Industry-specific SaaS solutions

I talked about the topic before when I wrote about "The land of a thousand niches" and touched on it in my "1st DO for SaaS startups". There are several reasons why we're so excited about vertical SaaS solutions. *

  • Focusing on a specific vertical simply allows you to build a better product for the industry that you're after. Whereas a generic product needs to be the lowest common denominator for different types of customers, a vertical solution can be tailored exclusively to the needs of your specific target audience.
  • By the same token, a vertical focus also allows you to tailor your messaging to one target group. Take our portfolio company Clio as an example. Look at their website and think about how much weaker their proposition would be if they had to keep it generic to address a broader target audience.
  • Knowing exactly who your target group is also makes sales and marketing much more straightforward. It means you'll know which publications your target customers read, which conferences they attend, which other products they use, and so on. You can even get their names and addresses from the yellow pages or other directories. And because people in an industry usually talk to each other a lot, it's easier to get a critical mass of mindshare which is so important for organic growth.
  • Competition tends to be less intense in verticals. Maybe because building a SaaS solution for field-service businesses like landscapers and snow removers doesn't appear like the sexiest thing on Earth, maybe because opportunities in verticals don't seem large enough for big enterprises. This gives you a chance to dominate a category and achieve extraordinarily high market share.

Boris Wertz, a good friend and co-investor in two vertical SaaS solutions, Clio and Jobber, recently wrote about the topic as well and has some additional points.

I have one caveat regarding vertical SaaS solutions: Make sure that the vertical that you're going after is big enough, i.e. aligned with your ambition with respect to the size of the company that you want to build. Expanding from one vertical into another one isn't easy. Maybe you won't have to start from zero, but the very reasons which make a vertical strategy attractive in the first place can also mean that most of the value that you've built in one category (domain expertise, product/market fit, mindshare,...) can't be easily transferred into another category.


* This doesn't mean that we're not excited about SaaS startups which don't have a vertical approach. If you focus on a specific part of the value chain (e.g. accounting, marketing, sales) it makes perfect sense to go horizontal. It's the "practice management" type product, which encompasses a large part of the value chain, for which I recommend the vertical approach.


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