It’s Time to Go After Industry Verticals
Why Today’s Most Disruptive Startups are Taking a Vertical Perspective
The most disruptive technologies today are horizontal platforms — computing, the Internet, CRM systems, databases, social media, mobile technology, the cloud revolution, payment gateways… Even in their incubatory stages, they became platforms that could be applied to just about any industry vertical — Retail, Manufacturing, Automotive, Financial Services, etc. Of course, Silicon Valley likes horizontal platforms — many of the giants fit the description — Google, Apple, Oracle, Facebook, Intel, and so forth. They can serve broad industry verticals, making the target market size larger and insulating the company against macroeconomic downturns in any one vertical.
But while technology companies continue to strive for incremental horizontal disruption by creating newer horizontal technology stacks, traditional industries are still mainly consumers of broader technology. They have adopted computing, internet, mobile, and cloud solutions, etc. to streamline their operations, increase productivity, reach their customers better … but many of these verticals have not been truly and deeply disrupted. That is, the fundamental nature of how the industry operates has remained largely unchanged.
But once in a while, something fascinating happens. Startups create vertical solutions by combining several horizontal platforms and taking advantage of emerging technology stacks to put together a novel vertical platform. And these aren’t just enabling technologies in the traditional sense — that an industry can take and adopt. These are Tsunamis that knock over an entire industry and force it to re imagine and reinvent itself. What comes out on the other side is a completely new industry with new stakeholders, new customer experiences, different economic scale and highly efficient productivity curve.
What happened in retail over the last 20 years is a perfect example. Retail has been around for several centuries and has pretty much stayed the same. Of course, they adopted technologies to drive efficiencies but never to the extent to reinvent itself in a fundamental sense. Startups combined a variety of technology elements — internet, digital payments, computing, databases and added retail specific tools like logistics-tech, collaborative filtering, and personalization to deliver an end to end experience that was fundamentally different from the retail ecosystem of the past. The resulting end to end stacks progressively revolutionized retail to create Digital Commerce — with new customer experience, supply chains, stakeholders and winners — creating multi-Billion dollar asset classes around the world.
Some of the best opportunities for value creation now exist at the intersections between existing broad horizontal technological platforms and specific industry verticals– particularly in some of the traditional industry verticals. Just like retail, there are similar inflection points for several other industry verticals (for example, the medical industry about to experience exponential AI driven growth). Today, there is a critical mass of disruptive technologies available, and the potential to create value and disrupt an industry is at an all time high.
One of the main drivers for this inflection point is the evolution of the smartphone ecosystem of the last decade. With a volume of 1.5B smartphones a year, every hardware element has become cheaper, faster, and better. Computing elements, connectivity, cameras, memory, and sensors are better than ever and far cheaper. Software platforms and the application ecosystem are now extensive and robust. Today, between Android and ioS, there are millions of apps that solve most of the problems that can be imagined.
Putting together a full stack product using the hardware and software elements from a smartphone has a lower barrier to entry than ever before. Benedict Evans of Andreessen Horowitz compares smartphone components to a container full of lego blocks. With the lego blocks of hardware components, software platforms and the apps, entrepreneurs can put together full stack solutions that produce massive ROI and are incredibly fast to market. This enables disruption of industry verticals where disruption was not previously economically viable.
Using this perspective, even apparently advanced technologies can be seen as composites of made from building blocks that are now commonplace. Drones become nothing more than flying smartphones. Robots are nothing but screen-less smartphones with a mechanical arm. In short, when you take all the aspects of the mobile hardware and software — and you add in the emerging disruptive technology stacks of AI and Machine Learning, AR and VR, and additive manufacturing–highly robust, cost effective, and quick-to-market solutions emerge that can disrupt an entire vertical.
At MFV Partners, we exclusively focus and invest in startups that are driving such industry vertical disruption. We believe industry verticals like Automotive and Transportation, Manufacturing and Industrial, and Knowledge Services will go through significant transformation over the next 2 decades. For example, with electrification, connectivity, Driver Assistance Technology, autonomous vehicles and Shared Mobility, the Automotive and Transportation industry is going through significant changes — in 10 years it will look very different from what it is today. Similarly, industries like Agriculture, Manufacturing, Industrial will be fundamentally transformed– creating opportunity for new startups (and investors).
We look forward to discovering, engaging, and backing the entrepreneurs who will be pushing the envelope in these industry verticals. Their ability to combine horizontal advances in technology and apply them to industry specific contexts will disrupt entire verticals, driving exponential value creation and providing unmatched return on investment for investors savvy enough to recognize the opportunities for vertical disruption.
