''' I remember the exact moment the idea for my first vertical SaaS company hit me. I was sitting in a coffee shop in Palo Alto, staring at a spreadsheet that was supposed to be managing our entire sales pipeline. It was a mess. We were using a huge, one-size-fits-all CRM, and it felt like trying to fit a square peg in a round hole. That’s when I realized: the future of SaaS wasn’t about building bigger, more complex horizontal platforms. It was about unbundling them into elegant, vertical-specific solutions.
That spreadsheet nightmare led to the creation of RemoteTeam, which was eventually acquired by Gusto. We weren’t trying to build the next Salesforce. We were just trying to solve a very specific problem for a very specific audience. And that’s the core of the vertical SaaS thesis: focus on a niche, understand their workflow better than anyone else, and build a product that feels like it was designed just for them.
The Horizontal SaaS Trap
For years, the prevailing wisdom in Silicon Valley was to build horizontal SaaS platforms. The thinking was simple: a bigger market means more potential customers. But this approach has a fundamental flaw. When you try to be everything to everyone, you end up being nothing to no one. Your product becomes bloated with features that most of your users will never touch, and your user experience suffers.
I’ve seen this happen time and time again. A promising startup raises a ton of money, tries to conquer a massive market, and then gets bogged down in an endless cycle of feature requests and custom development. They lose focus, their product becomes a Frankenstein’s monster, and they eventually get crushed by a more nimble, focused competitor.
I almost fell into this trap myself. With my first company, MovieLaLa, we had this grand vision of being the "IMDb for everything." We wanted to be the go-to platform for movies, TV shows, and even video games. But we quickly realized that we were spreading ourselves too thin. We were trying to compete with established players on multiple fronts, and we were losing. It wasn
It wasn’t until we narrowed our focus to just movies that we started to gain traction. We became the best at what we did, and that’s what ultimately led to our acquisition by Gfycat. That experience taught me a valuable lesson: focus is everything.
The Rise of the Vertical SaaS Champion
So, what exactly is vertical SaaS? It’s a software solution that’s designed for a specific industry or niche. Think of it as the difference between a Swiss Army knife and a scalpel. A Swiss Army knife can do a lot of things, but a scalpel is designed for one specific purpose, and it does it better than anything else.
That’s the power of vertical SaaS. By focusing on a specific industry, you can build a product that’s perfectly tailored to the needs of your customers. You can speak their language, understand their workflows, and solve their problems in a way that a horizontal platform never could.
And the market is finally starting to recognize this. We’re seeing a massive shift away from horizontal SaaS and towards vertical solutions. Just look at the numbers. The vertical SaaS market is expected to reach $305.3 billion by 2028, growing at a CAGR of 19.5%. That’s a huge opportunity for ambitious founders.
I’ve been fortunate enough to invest in some of the companies that are leading this charge, like Scale AI and Hugging Face. These companies are not trying to be the next Oracle or SAP. They are focused on solving very specific problems for very specific industries, and they are winning.
My Vertical SaaS Playbook
Over the years, I’ve developed a playbook for building successful vertical SaaS companies. It’s not a magic formula, but it’s a framework that has helped me and many of the founders I’ve invested in to navigate the journey from idea to IPO.
1. Find Your Niche
The first step is to find a niche that’s underserved by existing software solutions. Look for industries that are still relying on spreadsheets, paper forms, or outdated legacy systems. These are the industries that are ripe for disruption.
When I was starting RemoteTeam, I didn’t do a bunch of market research or create a complex business plan. I just looked at my own experience. I was a remote founder, and I was struggling to manage my remote team. I knew there had to be a better way, so I built it.
2. Become an Expert
Once you’ve found your niche, you need to become an expert in that industry. You need to understand the ins and outs of how they work, what their pain points are, and what they’re willing to pay for.
This means talking to potential customers, attending industry events, and reading everything you can get your hands on. You need to immerse yourself in their world so you can build a product that truly meets their needs.
3. Build a 10x Product
In the world of vertical SaaS, a “good enough” product is not good enough. You need to build a product that is 10 times better than the existing solution. This could mean being 10 times faster, 10 times cheaper, or 10 times easier to use.
This is where your deep understanding of the industry comes in. By knowing your customers better than anyone else, you can build a product that solves their problems in a way that they never thought possible.
4. Nail Your Go-to-Market
Once you have a great product, you need to figure out how to get it into the hands of your customers. This is where a lot of vertical SaaS companies struggle. They build a great product, but they don’t know how to sell it.
In the early days, you should be doing all the selling yourself. This will help you to understand your customers’ objections, refine your messaging, and build a repeatable sales process. As you grow, you can start to hire a sales team, but you should never lose touch with your customers.
5. The Road to IPO
Building a vertical SaaS company is a marathon, not a sprint. It takes years of hard work and dedication to build a company that can go public. But if you follow this playbook, you’ll be well on your way.
I’ve been fortunate enough to experience two successful exits, and I’ve invested in over 200 companies. I’ve seen what it takes to build an enduring company, and I’ve also seen what can go wrong. The journey is never easy, but it’s always worth it.
The Future is Vertical
The unbundling of horizontal SaaS is one of the biggest opportunities in tech right now. For founders who are willing to go deep into a specific industry and build a world-class product, the rewards can be immense. It’s not just about the financial returns; it’s about building something that truly makes a difference in people’s lives.
So, if you’re a founder who is passionate about solving real-world problems, I encourage you to explore the world of vertical SaaS. Find a niche, become an expert, and build a product that your customers can’t live without. The future is vertical, and I can’t wait to see what you build.
Frequently Asked Questions
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.