Our 7 biggest takeaways from “The Playbook for Winning in a Vertical Market” at SaaStr Annual 2018.
Ara Mahdessian: CEO / ServiceTitan & Will Griffith: Founding Partner / ICONIQ Capital (ServiceTitan Lead Investor)
Software for vertical markets — whether in construction, insurance, auto, transportation, healthcare, restaurants, or elsewhere — is the next big opportunity in SaaS at $1 trillion of potential market cap. Vertical markets provide the opportunity to deliver and capture greater value (and revenue) per customer, grow faster through referrals and network effects, eliminate churn, reach 80%+ market penetration, and expand into additional products and services to deliver and capture still greater value (and revenue). We’ll discuss the playbook for winning in vertical markets, put together from best practices and lessons learned across various vertical market SaaS companies and investors.
1. Vertical market software is a $1TN opportunity
2. Roughly 90% of vertical software companies are not founded in the Bay area
3. Product-focused founders getting started through pain points
- Must have subject matter expert who knows how to run that type of business in order to build and sell a product for the pain points.
- Ara’s parents worked in the trades, so he started by building software to make their lives easier and their businesses better.
4. How much of the market you can take in a vertical
Ara and Will both believe 80+%. That’s far from the 1–10% market capture often projected by Founders. Have you built a 5-year forecast showing 1% market capture resulting in a $100M revenue opportunity? I know I have.
5. Leverage customer success to scale
Ara believes the fastest way to scale in a vertical market is by leveraging customer success (e.g,. video testimonials of customer fans). In vertical markets, word of mouth can be huge as the players are in close contact and all have the same pain points, so the potential for virality is inherently already there. With this, you will get the opportunity to partner with a marquee logo. Once you have the best customers, everyone else in the industry wants to partner with you.
6. TAM (Total Available Market) Expansion
Once you start earning a lot of trust, you then have the opportunity to cross-sell other products and increase your TAM. Then you can start thinking about adjacent markets. Will said that Iconiq (a vertical market investor) has grossly underestimated TAM in every vertical market company they have invested in, because of ARPU expansion over time.
7. How to scale subject matter expertise as the organization grows
Have to document, enable, hire industry expertise into your team and seek out external resourcesIf you’ve spent time in a vertical and have experienced or repeatedly witnessed specific pain points, you may have a great opportunity to build a market leader.