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you can have the a great product but a great product without users is a shitty product

💨 tl;dr

Vertical SaaS is all about targeting specific industries for better success. Focus on fragmented sectors, understand customer journeys, and start with wedge products. Use data-driven strategies, validate ideas with real customers, and ensure your pricing reflects the ROI for your clients.

💡 Key Ideas

• Vertical SaaS presents significant opportunities by focusing on specific industries rather than broad concepts.
• Industry selection is critical; target fragmented sectors with a mix of small and mid-market businesses for better chances of success.
• Understanding customer journeys and operations in the chosen industry helps identify software needs and opportunities for disruption.
• Unbundling existing solutions into tailored vertical software can reveal gaps in the market.
• Wedge products are essential for market entry, allowing companies to build trust and expand into comprehensive solutions.
• Customer acquisition often requires a sales-led approach, especially in industries with high average contract values.
• Integrating payments into vertical SaaS can significantly enhance market size and scalability.
• Pricing strategies must reflect the ROI for customers, often charging less than the savings generated.
• There are substantial AI opportunities in traditional industries like machine shops, particularly in predictive maintenance and automation.
• Retention strategies are crucial; focusing on customer needs can lead to increased revenue and reduced churn.

🎓 Lessons Learnt

• Focus on vertical SaaS for enduring businesses. Target specific industries with tailored solutions to ensure long-term success.

• Approach vertical SaaS as a science, not an art. Use data-driven strategies and systematic analysis to build your business.

• Identify a promising industry first. Prioritize industry potential over just brainstorming product ideas for better market fit.

• Map out customer journeys. Understand the entire customer experience in your targeted industry to find software opportunities.

• Leverage opportunities in 'boring' industries. Uncover complex problems in less glamorous industries that are ripe for SaaS solutions.

• Start small with wedge products. Begin with niche products to gain traction before expanding your offerings.

• Validate ideas through real-world engagement. Visit potential customers to gather feedback and understand their needs deeply.

• Go-to-market strategy is crucial. Build strong relationships and a solid plan to reach users rather than relying solely on product quality.

• Focus on average contract value (ACV). Higher ACVs are essential for scaling effectively in vertical SaaS.

• Incorporate pricing strategies based on ROI. Ensure your pricing reflects the value your solution provides to customers to justify costs.

• Market feedback is key for pricing. Start with competitive pricing but be flexible to adjust based on customer responses.

🌚 Conclusion

To build a $1M+ vertical SaaS business, prioritize industry selection, leverage opportunities in less glamorous sectors, and focus on customer needs. A solid go-to-market strategy and retention efforts are key to scaling effectively.

In-Depth

All Key Ideas

Vertical SaaS Insights

• Vertical SaaS is often seen as boring, but it presents significant opportunities for building successful businesses.
• The shift away from industry-specific software to broader startup concepts has created a gap in the market for vertical SaaS.
• Focusing on a single industry or business type allows for tailored software solutions and enduring businesses, even if they don't meet VC growth expectations.
• Building a vertical SaaS business is more of a scientific approach rather than an artistic one, emphasizing mathematical strategies over big ideas.
• Understanding how to pick a market and pricing strategies is crucial for launching a vertical SaaS business.

Vertical SaaS Industry Selection Tips

• Focus on picking an industry rather than coming up with an idea; industry selection is crucial for vertical SaaS success.
• Evaluate industries based on their revenue size and the number of companies within that industry.
• Avoid top-heavy industries; they are difficult for bootstrappers to penetrate without significant funding.
• Look for a healthy mix of small, mid-market, and enterprise businesses for better market opportunities.
• Machine shops represent a promising vertical SaaS opportunity due to substantial revenue and a decent number of companies in the space.

Key Insights on Vertical SaaS Business Opportunities

• The importance of identifying highly fragmented industries with a healthy number of small and mid-market businesses, as exemplified by machine shops.
• Domain expertise can enhance success, but is not a prerequisite for building a vertical SaaS business in an unfamiliar industry.
• Learning the entire customer journey and operations of the target industry is essential to identify software opportunities.
• Visualization of industry operations, as demonstrated by Toast's S1, helps in understanding potential software needs.
• The concept of unbundling existing platforms (like Craigslist) into vertical software solutions highlights the potential for targeted SaaS products.

Vertical Software Development Insights

• Many traditional industries have been disrupted by software solutions, such as dating apps replacing Craigslist for dating and Airbnb for short-term rentals.
• The concept of unbundling industries into vertical software solutions involves visualizing and mapping out the end-to-end operations of various industries.
• Understanding the segmentation and scale of an industry is crucial for vertical software development.
• Analyzing P&Ls from businesses within a selected industry helps identify spending patterns and areas for software automation.
• Building software should aim to increase revenue, decrease costs, prevent customer churn, and, in regulated industries, maintain compliance.
• Investigating existing software solutions in the market reveals competition and opportunities for innovation, often highlighting legacy providers.

Market Opportunities and Challenges

• There are opportunities in fragmented markets where horizontal software solutions are stitched together for various industries, highlighting a need for all-in-one solutions.
• Many industries still rely on outdated paper processes, indicating potential areas for vertical SaaS development.
• Identifying competition requires mapping out business operations in detail, beyond just searching for industry-specific software.
• AI can assist with high-level market research, such as market size and segmentation, but may struggle with detailed workflow analysis for specific industries.

Machine Shop Operations and Opportunities

• The operation of a machine shop consists of 14 steps from customer inquiry to maintenance and cleanup.
• Prevalent software solutions in the machine shop industry include CRMs, ERPs, design software, and inventory management tools.
• Identifying legacy software and areas still using pen and paper reveals opportunities for disruption.
• There is potential for AI and fintech opportunities within machine shops.
• Analyzing the use of horizontal software solutions highlights areas for vertical SaaS development.

Insights on AI Opportunities in Machine Shops

• Observing operations in blue collar industries can help validate software ideas by directly understanding their needs.
• There are significant opportunities for AI in machine shops, especially in predictive maintenance, job scheduling, automated quality control, and energy management.
• Many machine shops are likely not utilizing AI, particularly in the SMB and mid-market sectors, highlighting further opportunities.
• Current project management and accounting tools used by machine shops are often generic and lack specific features tailored to their needs.
• Validating ideas in person by seeking feedback from machine shop owners is crucial before proceeding with development.
• Understanding the go-to-market strategy is critical; a great product needs users to be successful.
• Analyzing the go-to-market strategies of successful vertical SaaS companies can provide valuable insights for new founders.

Customer Acquisition Strategies

• Go to market is really difficult in many industries, often requiring heavy outside sales models rather than typical product-led approaches.
• VCs prefer investing in companies with product-led or marketing-led customer acquisition for faster growth.
• To build a big company with a sales-led motion, substantial average contract values (ACVs) are necessary.
• Understanding past successes and failures in customer acquisition can inform creative approaches for faster growth.
• Wedge products are essential as they serve as the 'get in the door' product for vertical SaaS businesses.
• The ultimate goal is to become a one-stop shop for customers, but it's important to start with a more focused offering.

Wedge Product Strategies and Case Study

• Wedge products can penetrate markets with poor competition by addressing important customer needs effectively and creatively.
• Roofer.com serves as a case study for a successful wedge product, starting with a proposal tool for roofing companies.
• The proposal tool utilized Google Maps for real-time quotes, simplifying the process for customers and roofing companies.
• Roofer.com implemented a marketing-led acquisition strategy, leveraging Instagram and Facebook ads to reach customers in the home services industry.
• Existing customers are easier to sell to than new customers, leading to expansion opportunities after initial wedge product success.
• The company's strategy involves evolving from a wedge product to a full suite of software solutions, indicating a growth trajectory.

Vertical SaaS Insights

• Building a wedge product can create trust and eventually own the transaction in vertical SaaS.
• Implementing payments in vertical SaaS solutions significantly increases the potential market size and scalability.
• Vertical software companies can scale quickly by integrating payments, capturing a portion of the massive transaction volume in their industry.
• Pricing in software is often overlooked, but it should be based on understanding what customers currently pay for the problem being solved.

Key Insights on SaaS and Retention Strategies

• Schools lose millions annually due to low retention rates, and targeting at-risk students can save them money.
• Pricing products based on the potential ROI they generate for clients is crucial, often charging less than the forecasted savings.
• The focus should be on building products that either increase revenue, decrease costs, prevent customer churn, or ensure compliance for clear ROI.
• The speaker offers resources for learning about vertical SaaS, including a newsletter and a comprehensive paid guide.

All Lessons Learnt

Lessons Learnt

• Focus on vertical SaaS for enduring businesses.
• Approach vertical SaaS as a science, not an art.
• Consider wedge products when starting.

Building a Vertical SaaS

• Focus on an industry, not an idea. The first step in building a vertical SaaS is to identify a promising industry rather than brainstorming ideas.
• Look at industry size and revenue. Assess how big the industry is based on revenue; larger industries often present better opportunities.
• Consider the number of companies in the industry. Fewer companies in a high-revenue industry can mean it's more enterprise-driven, making entry more challenging.
• Segmentation is critical. A healthy mix of small, mid-market, and enterprise businesses in the industry allows for easier entry and growth potential.
• Start small and grow. Target smaller businesses initially to develop your product, and then expand features to appeal to mid-market and enterprise clients.

Key Insights for Building a Vertical SaaS Business

• You don’t need industry expertise to succeed: Even if you have no background in a specific industry, you can still build a successful vertical SaaS business by learning everything you can about that industry.
• Mapping customer journey is crucial: You have to map out the entire customer journey and operations of the businesses within the industry to identify software opportunities and understand the market better.
• Opportunity in boring industries: There is significant opportunity in industries that others might consider boring, as they offer complex problem sets that can be addressed through vertical software solutions.
• Learn from established companies: Analyzing how successful companies visualize their operations can provide insights into identifying opportunities in your target industry.

Key Steps for Understanding Industry Operations

• Map out and visualize end-to-end operations
• Get hands on as many P&Ls as possible
• Follow the money
• Look at competition deeply

Software Competition Analysis Strategies

• Look for fragmented markets: When analyzing software competition, identify industries that are pulling together horizontal solutions. There's often a demand for an all-in-one solution in these fragmented spaces.
• Map out business processes: Don't just search for specific software names. Instead, map out how businesses operate from A to Z to uncover areas where they still rely on paper processes or inefficient solutions.
• Utilize AI for research: AI can assist in desk research by providing market sizes and segmentation. However, it may not effectively detail every step of industry-specific workflows.
• Focus on specific industries: When investigating competition, focus on the particular industry you're in (like trade schools), rather than generic software terms, to find tailored opportunities.

Opportunities for Software Solutions in Machine Shops

• Identify Legacy Software: Look for software solutions in the machine shop industry that are 15 years or older. These are potential targets for disruption.
• Pen and Paper Opportunities: Areas still using pen and paper indicate a clear opportunity for software solutions. Focus on job tracking, scheduling, and inventory management.
• Leverage AI and Fintech: Explore areas where machine shops are not utilizing AI or fintech solutions, as these represent significant opportunities for vertical SaaS development.
• Avoid Horizontal Solutions: Identify where machine shops are using multiple horizontal software solutions. This fragmentation suggests a need for integrated vertical solutions.
• Validate Ideas through Engagement: Visit actual machine shops to validate your ideas and understand their needs better; sometimes, buying lunch can facilitate these conversations.

Key Strategies for Machine Shops

• Validate your ideas in person. Don’t just rely on online research; go to machine shops and get real feedback to ensure your ideas are grounded in reality.
• Leverage AI for operational insights. Use AI tools for predictive maintenance, job scheduling, and quality control to enhance efficiency in machine shops.
• Understand your go-to-market strategy. Before investing time in product development, ensure you have a solid plan for reaching users, as a great product without users is worthless.
• Study successful vertical SaaS companies. Look at how other companies in your niche acquired their first customers to inform your own go-to-market approach.

Key Strategies for Business Growth

• Go-to-market strategy is crucial: In many industries, especially vertical SaaS, success often relies on building strong relationships rather than traditional product-led or marketing-led approaches.
• Focus on average contract value (ACV): To grow a big company, especially with a sales-led model, you need substantial ACVs; otherwise, it's hard to scale effectively.
• Leverage creative approaches for customer acquisition: Don’t just follow traditional methods; innovate and adapt strategies, like creating engaging content (e.g., newsletters or memes) to attract your target audience.
• Start with wedge products: Instead of aiming to be an all-in-one solution from the start, begin with a niche product that can get you in the door and then gradually expand your offerings.

Strategies for Product Development

• Focus on Wedge Products: Start with a specific, easily implementable product instead of an all-in-one solution. It helps you gain traction and proves your reputation.
• Leverage Digital Marketing: Use online marketing strategies, like social media ads, to reach your target market effectively, especially in traditional industries.
• Ease of Implementation is Key: Ensure your product is simple to deploy. A product that’s easy to integrate will attract more customers quickly.
• Customer Acquisition is Easier with Existing Users: It’s much simpler to sell additional products to current users than to new customers. Build loyalty first.
• Follow the Money: Create products that align with your customers' financial processes, like proposals that lead directly to bookings, making your solution indispensable.

Product Development Strategies

• Build a wedge product to increase trust
• Incorporate payments for scalability
• Understand existing costs to set pricing

Pricing Strategies

• Focus on ROI: Always break down the money to understand how much your solution saves or generates for the customer. This helps in justifying your pricing based on the value provided.
• Target Key Business Metrics: Only build products that can either increase revenue, decrease costs, prevent customer churn, or help with compliance. These are critical areas where you can demonstrate clear ROI to potential clients.
• Market Feedback is Crucial: Start pricing your product at a higher percentage of the ROI (like 50%) but be ready to adjust based on market feedback. This ensures that your pricing remains competitive and aligned with customer expectations.
• Niche Down: Keeping your market small can be beneficial. Avoid attracting too many competitors, which can dilute your offering and make it harder to stand out.