Building conviction on an early stage vertical SaaS product
When we initially embarked on the Crealo journey, the idea of a vertical SaaS felt pretty distant; in fact, we didn’t even realize we were creating a product in this category. It wasn’t until we set out to raise funds that this became clear. It was like a sudden “aha” moment, as if all the little details we’d noticed suddenly made perfect sense, confirming our initial questions.
When curious about products, people usually go for the ones that everyone’s talking about — the “horizontal ones” with big, well-known brands that they can easily get their hands on. These products target problems and not industries. These are CRMs, HR management tools, Website builders, communication softwares, etc.
A vertical SaaS is a product purposely built for a specific industry. Some examples are: Autodesk (construction), Toast (restaurants) or — in France - Zenchef (restaurants), Weezevent (Event management).
When you dive into the world of vertical SaaS, Slack isn’t your inspiration. They’re in a whole different league, playing a different game.
Which is why, in this article, I’ll try to highlight a few big differences we experienced on our journey and offer some ideas/tips to keep in mind before fully diving into a vertical SaaS journey.
1 — The scope : Your market is probably larger than what you initially anticipate, but …
A horizontal SaaS targets huge markets and is used by a wide range of users. Figuring out your total addressable market is usually straightforward: your pricing X number of potential buyers.
However, it is quite likely you’ll come across intense competition. Users will constantly be comparing your solution to others, considering factors like pricing, design and technology, making customer retention a real challenge.
A vertical SaaS, on the other hand, has a limited scope, a specific industry. The good news is that these markets are usually larger than what you initially anticipate.
In general, you’ll find fewer competitors in your space. In some underpenetrated verticals, you might find yourself as one of few players, which makes retaining customers easier.
Nevertheless, there are some important considerations to keep in mind right from the start:
- Segmentation: It’s tough to address just one category, such as SMB or Enterprise, in the vertical space. To make it big, you might need both without distinction. Unlike traditional SaaS, where many unicorns focus solely on SMBs, the vertical approach often demands serving both, making it a necessary but challenging task from both a product and marketing perspective. At Crealo, we started with SMB (easier to access and less demanding on the technical aspects) and now we are going up-market.
- Concentration: More concentration in a market means more risk, especially the risk of relying heavily on the top 5 players who hold 50% of the market. This is a major point to watch out for.
- Speed: Having few competitors doesn’t always guarantee quick success. Sometimes, the industry may not be accustomed to SaaS models and prefer in-house solutions. If you’re targeting Enterprise first, consider what percentage of them are genuinely ready to adopt new solutions. Many may have already built something, even if it’s less valuable than your product, and might not want to switch in the near future.
- Barriers to Entry: Before you set yourself a place at the table, think about whether you need a high level of expertise and the right connections in the industry to be taken seriously. Crealo started working with small customers enabling us to build early reputation and also deepen our learning
Those same reasons can make it even more challenging to raise funds. Investors might not be too familiar with your industry or the vertical business model. It will be trickier to spell out your long-term plan and help them understand your product and strategy.
2 — Initial Go-to-market : your first customers will define your product
If you are targeting under-penetrated verticals, the first customer is likely to be found during the research phase. That’s how it played out for us — we managed to sell to our first five customers using only Figma designs.
The goal during this phase is to identify the entry-product.
Here a great thread on the subject :
The “get-in the door” product : solving a very unique problem with easy deployment. With this product you get your first customers and build your reputation and word of mouth.
When we started, our only focus for us was the business value proposition. Nobody really cares about your tech stack. In our case, we started with no code tools and bit custom code here and there. Our prospects didn’t have many points of comparison, and even though we had a well-designed product, it wasn’t the game-changer.
Selecting the right customers in this phase is critical because they’ll shape your product. I recall that we iterate on every screen and every detail with our first customer. We were fortunate because they were highly organized, had clear processes, and a solid idea of what they wanted from our product.
3 — Strategy long term : In the vertical SaaS industry, it is typical for one leading player to hold a market share exceeding 30%.
Calculating your TAM in a simple way goes like this: just multiply your pricing by the number of potential customers. But for a vertical SaaS, it’s a bit different because the long-term goal is to increase your ACV (Average Contract Value) by offering new features or additional products to the same customers.
If the goal is to become the key tech player in your industry, consider targeting various types of people, different workflows, and various roles. Some methods to expand your TAM include adding payment processing, lending, insurance, or even setting up a marketplace for supply. In our case, the most obvious choice was payments, as we handle all copyright payments and have the necessary data to process author payments efficiently. It’s something on our roadmap for the near future.
You can find a great article on this subject here :
Another benefit is that vertical SaaS companies have access to more data than general providers, creating a differentiating opportunity to dive into new innovations like AI, for example
Conclusion
The journey into vertical SaaS is one that offers unique opportunities and challenges. As we navigate this path, understanding the nuances of our industry and our product category is critical to achieve a long term vision.
When we tried to gather knowledge on this subject what we noticed is that most of it came from investors and VCs, focusing more on rationals and valuations.
This article is a modest contribution from an operational founder view;
