Grow faster with a vertical SaaS strategy

Vertical software-as-a-service products target an industry or business model niche. They are vertical because they go deep by solving problems at multiple layers of their customers’ technology stack. For example:

Horizontal SaaS products are horizontal because they target a wide range of businesses that are trying to solve a common problem, regardless of their industry. For example:

Most SaaS businesses need to make an explicit decision between the two models before they stumble into a vertical or horizontal SaaS strategy. Otherwise, you may experience a lot of operational pain because the best way to build and grow these businesses varies greatly. By understanding the differences between vertical and horizontal SaaS strategies, you can better position your company for long-term success.

Growing a horizontal SaaS product is typically more difficult, but the long-term total addressable market is much larger. Horizontal SaaS products have more significant addressable markets because they solve a problem experienced by many more businesses. Growing a horizontal SaaS business is difficult because there is usually more product competition (if most businesses experience your problem, many others have likely had the idea to fix it) and even more marketing competition (because your target customer is extremely broad, your marketing team must compete with companies selling completely unrelated products). So, while you are much less likely to succeed with a horizontal product and growth strategy, if you do, you can build a much larger and more valuable business.

It is easier to build and grow a vertical SaaS product because:

Most SaaS businesses set out to solve a specific problem and grow by either solving more problems for their early customers (i.e., scaling vertically) or trying to sell their solution to more diverse businesses (i.e., scaling horizontally). When startups struggle to scale beyond initial product-market fit, it’s often because they are trying to scale horizontally when a vertical focus makes more sense.

Horizontal versus vertical is more of a spectrum than a binary state. Markets contain solutions with varying levels of niche, existing somewhere on the spectrum between horizontal and vertical. For example, one startup might focus on all businesses who need a payment provider, another might focus on SaaS businesses, while a third might focus very specifically on SaaS businesses with usage-based pricing. In these markets, the more niche product will easily win deals that fit nicely within their niche, while the more horizontal company will absorb those with simpler needs or whose niche has yet to be catered to.

While gradually going more horizontal can make sense for a startup that is starting to exhaust its’ original target market, many startups do this prematurely. Early-stage startups often struggle to reject prospective customers who don’t fit within the niche they are targeting. By onboarding these customers, they gradually expand their target market before their product or growth strategy is ready and lose focus on satisfying their ideal customer, which can slow growth.

Whether you choose a vertical or horizontal strategy, focus is still critical for a startup. Horizontal startups need to focus on the core problem they are trying to solve, while vertical startups need to focus on their niche market. It pays dividends to have a clear idea of who you want to target, what problem you want to solve, and what distractions you want to avoid. Otherwise, your product could end up too shallow to satisfy your nich,e and too narrow to cater to a broad market, which could trap your startup in stasis.

6 November, 2022

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