I’ve seen two of my companies get acquired. I’ve invested in over 200 others, including some of the biggest names in AI like Anthropic, OpenAI, and Scale AI. And I can tell you this with absolute certainty: the old way of building a SaaS company is dead.
For years, the playbook was simple and it worked beautifully. You’d find a big, horizontal market, build a solid product, and then pour money into sales and marketing to drown out the noise. The moats were clear and deep. You controlled the data, you owned the workflow, and you locked users into your interface. I saw it work. I made it work. It was a formula, and it created giants.
But that era is over. AI is a wrecking ball, and it’s tearing down those old fortifications one by one. Your carefully structured data schemas that took years to perfect? An LLM can now parse unstructured data from a dozen different sources in the blink of an eye. Your sticky, hard-to-leave workflow? An AI agent can automate it away without ever needing to log into your app. Your beautiful, award-winning user interface? Who needs it when you can just tell an AI what you want and have it done? The very things we thought were defensible are now vulnerabilities.
I saw this happen to a company I advised a few years back. They were a classic horizontal SaaS player, a leader in their space. They had all the traditional advantages. Then a tiny startup, barely a handful of people, came along with a clever AI-powered tool. It did the same core job, but it was faster, smarter, and cheaper. Within 18 months, the market leader was scrambling. They were playing chess while the startup was playing an entirely different game. They were focused on feature parity while the startup was focused on outcome delivery. It was a brutal lesson in how quickly the ground can shift.
That’s why I’m all-in on Vertical SaaS. The game isn’t about going broad anymore. It’s about going deep. It’s about finding a specific niche, a single industry with its own language, its own challenges, its own bizarre set of problems, and building a solution that is 10x better than anything a horizontal player could ever dream of creating.
The New Playbook: From System of Record to System of Action
The fundamental shift is moving from being a passive system of record to an active system of action. You can’t just be a database with a pretty face anymore. You can’t just store information and expect your users to figure out what to do with it. You have to use AI to turn that data into tangible outcomes.
A system of record is a library; it holds the books. A system of action is the librarian who reads every book, understands your request, and hands you the exact paragraph you need. It anticipates needs. It automates entire multi-step tasks. It makes intelligent decisions. It doesn’t just show you a dashboard of what happened; it actively makes the next thing happen. It's proactive, not reactive.
This is where true, lasting defensibility is found in the age of AI. The models themselves are becoming commodities. Everyone has access to the same powerful APIs from companies like OpenAI and Anthropic, both of whom I’ve been fortunate enough to invest in. The real, unique value—the moat that no one can copy—is in the orchestration layer. It's the unique, opinionated way you combine AI with your deep industry knowledge to solve a very specific, very expensive problem. It's the secret sauce that turns a generic AI tool into an indispensable industry-specific solution.
How to Build a Vertical SaaS Winner
So, what does this new playbook look like in the real world? It’s not just theory. I’ve seen these strategies create massive winners in my own portfolio. Here’s how they do it.
1. Find a Niche and Go Deeper Than Anyone Else
The saying is true: the riches are in the niches. Stop trying to build a better Salesforce. That’s a battle you can’t win. Instead, try to build a better CRM for a specific, underserved vertical. Think project management for architectural firms that only do sustainable building projects, or an inventory system for independent wineries that specialize in natural wine. The more specific your focus, the stronger your competitive advantage.
When you go deep, you can build a product that is perfectly tuned to the needs of your customers. You speak their language. You understand their workflows in a way that no horizontal giant ever could. You become an insider, a partner. My first acquired company, RemoteTeam, did exactly this. We didn't try to build a generic HR platform. We focused obsessively on the unique problems of hiring and managing a global, remote workforce. We handled things like international payroll, compliance, and benefits in a way that the big, horizontal players just couldn't. That focus is why Gusto acquired us. We solved a specific, painful problem better than anyone else.
One of my most surprising angel investments is a company that builds management software for commercial beekeepers. It sounds absurdly specific, but it’s a huge, surprisingly complex, and totally underserved market. They handle everything from hive health monitoring to honey production tracking to pollination contract management. Because they are so focused, they’ve built a product that is absolutely indispensable to their customers. They are the system of action for the entire beekeeping industry. They're not just a software vendor; they're a central nervous system for their customers' businesses.
2. Become the Workflow Orchestrator
Don’t fall into the trap of thinking a slightly better AI model is your competitive advantage. It’s not. Your moat is the workflow. It’s the way you intelligently string together different AI services, proprietary data sources, and human-in-the-loop processes to create a seamless, end-to-end solution for a complex task.
Think of yourself as the conductor of an orchestra. The AI models are the individual musicians. They are incredibly talented, but without a conductor, it’s just noise. Your job is to make them play together in perfect harmony. The result is a symphony of automation that is far more powerful and valuable than any single instrument. You're not just calling an API; you're designing a system.
Look at companies like Scale AI. They don't just provide a labeling tool; they orchestrate a massive, complex workflow of data processing, model training, and human feedback to deliver high-quality data for AI applications. That orchestration is their defensibility. They've built a complex, multi-stage process that is incredibly difficult to replicate. That's the kind of moat you want to build.
Another example is a legal tech company I invested in. They don't have their own LLM. They use a combination of models from OpenAI, Anthropic, and others. Their magic is in the workflow. They've built a system that can take a messy pile of legal documents, identify the key clauses, compare them against a database of precedents, and flag potential risks. The AI models are just one part of that process. The real value is in the orchestration.
3. Embed Fintech to Become the Industry's Financial Hub
This is the final boss level for Vertical SaaS. Once you’ve established yourself as the core system of action for an industry, you have an incredible opportunity to embed financial services directly into your product. I'm talking about payments, lending, insurance, and corporate cards.
This is so powerful because you are already at the absolute center of your customers’ businesses. You’re already processing their invoices, managing their payroll, and tracking their inventory. You have the data. You have the trust. Adding financial services is a natural, logical extension of the value you already provide. You're not just an expense; you're a revenue generator.
It’s also a monster revenue opportunity. For many of the most successful Vertical SaaS companies, fintech is becoming a larger part of their business than the core software subscription. It’s a way to massively increase your average revenue per user (ARPU) and explode your total addressable market (TAM). You're no longer just selling software; you're taking a small piece of every transaction that flows through the industry. You become the financial operating system for your vertical.
Toast is a great example of this. They started as a point-of-sale system for restaurants. Now, they offer a whole suite of financial services, from payment processing to payroll to lending. They've become the financial hub for the entire restaurant industry. That's the power of embedding fintech.
The Future is Vertical
The big horizontal SaaS giants aren’t going away tomorrow. But the ground is undeniably shifting beneath their feet. The most exciting, explosive opportunities in software today are in Vertical SaaS. It’s where real innovation is happening. It’s where the next generation of category-defining companies will be built.
So if you’re a founder mapping out your next move, my advice is simple. Stop thinking horizontally. Stop trying to be everything to everyone. Find a niche you are obsessed with, go deeper than anyone else is willing to, and build a true system of action that will fundamentally rewire that industry. The playbook is right here. Now it’s your turn to execute. Go build something amazing. I’ll be watching, and maybe, I’ll be investing.
Frequently Asked Questions
What if I disagree with some of the advice?
Good. That means you're thinking critically, which is exactly what a good founder should do. Take what resonates, test it, and discard what doesn't work for your specific situation. No advice is universal.
Is this guide based on real experience?
Every recommendation in this guide comes from direct experience, either from building and selling my own companies, or from patterns I've observed across 200+ angel investments. I don't write about things I haven't personally tested.
Who is this guide designed for?
This guide is written for founders and operators who want practical, actionable advice rather than theoretical frameworks. Whether you're just starting out or scaling an existing business, the principles here apply across stages.
How should I work through this guide?
Don't try to absorb everything in one sitting. Read through once to get the big picture, then go back and work through each section as it becomes relevant to your current challenges. Bookmark it and return to it regularly.