VSKP
Key takeaway
- For entrepreneurs: Vertical SaaS companies have unique advantages in customer acquisition and retention, making them attractive business models.
- For investors: Vertical SaaS businesses often exhibit strong unit economics and high retention rates, potentially leading to attractive long-term returns.
Summary
The Vertical SaaS Knowledge Project (VSKP) is a comprehensive resource that explores the intricacies of vertical Software-as-a-Service (SaaS) businesses. It delves into various aspects such as market dynamics, business models, growth strategies, and investment considerations specific to vertical SaaS companies. The project aims to provide valuable insights for entrepreneurs, investors, and industry professionals interested in this specialized sector of the software industry.
Insights
- Vertical SaaS companies have unique advantages over horizontal SaaS, including multi-product capabilities and high market share potential.
- Success in Vertical SaaS involves:
- Winning the Category: Owning the control point and scaling locations.
- Expanding Offerings: Cross-selling additional products to increase revenue and customer retention.
- Extending Through the Value Chain: Selling to other stakeholders such as suppliers, employees, and consumers.
- Case studies of successful Vertical SaaS companies like Toast, CCC, and Avetta illustrate these strategies in action.
Implications
- For Entrepreneurs:
- Focus on becoming the primary software solution in a specific vertical by owning the control point.
- Develop a multi-product strategy to enhance customer value and retention.
- Explore opportunities to extend your offerings to other stakeholders in the value chain.
- For Investors:
- Vertical SaaS companies present lucrative investment opportunities due to their potential to dominate niche markets and transform industries.
- Look for companies that have a clear strategy for owning the control point and expanding their product offerings.
- Assess the potential for these companies to extend through the value chain and create network effects.
https://www.tidemarkcap.com/vskp
Win the category
- https://www.tidemarkcap.com/vskp-chapter/control-points-patterns-2024 → target a control point / system of record that has some combination of workflow / data / account gravity with a compelling value proposition (incremental consumer demand, bringing in funds, changing the consumer experience) by deploying a control point pattern (integrate and surround, franchise, formation and access, industry ledger, do the work, bring the ecosystem).
- https://www.tidemarkcap.com/post/are-tech-enabled-vertical-roll-ups-the-future-or-the-past → the M&A alternative to acquiring customers organically via the control point pattern strategy. Includes a definition on what a tech-enabled vertical roll-up is, the Why Now? Case for Tech-Enabled Vertical Roll Up and What Makes For a Vertical That’s Ripe for a Tech-enabled Roll-Up Strategy
- https://www.tidemarkcap.com/post/ai-extinction-or-evolution (August 2023) → AI-enabled investment thesis: Content and data businesses have and will come under extreme pressure, but workflows have a number of strong moats that allow incumbent companies time to adapt and adopt AI as a complement. Vertical SaaS control point incumbents are even more protected in the short term and, if they are aggressive in pursuing AI features and vigilant on developments in open source LLMs, stand to gain much more from AI. AI will accelerate software eating the world. The disruption doesn’t come to the value of software, but who ends up capturing that value.