Vertical SaaS Innovations

The "SaaSpocalypse" headlines are everywhere. Claude launches workflow plugins. $285 billion in software market cap evaporates in days. CNBC builds a Monday.com clone in an hour for $5. But here's what we may be missing: horizontal AI isn't killing vertical SaaS. It's killing horizontal SaaS, and forcing vertical players to evolve into something far more valuable. Let me explain. Horizontal AI (Claude, ChatGPT, Gemini) is trained on the internet. It knows a little about everything. That's its superpower and its fatal flaw. Ask it to navigate FDA 510(k) submissions while tracking your quality management system, supplier audits, and design history file, and you'll hit its limits fast. The problem isn't intelligence. It's context. Horizontal AI doesn't know a sub-sub-industry's regulatory frameworks, proprietary workflows, the historical data patterns that predict outcomes in a vertical, or the tribal knowledge embedded in how a sector actually operates. This is where vertical SaaS transforms rather than dies. The (surviving + becoming stronger) SaaS companies will use horizontal AI as infrastructure while building defensibility in layers it can't touch. First, they become the action layer, shifting from a system of record to a system of action. They don't just log that a compliance check happened, they perform it. They don't track claims, they adjudicate them. Second, they own the workflow. Data moats are weaker now since LLMs parse unstructured data easily. But workflow ownership is stronger than ever. If you're embedded in the movement of money, atoms, or compliance, you're the execution layer AI needs to function. Third, they build data loops. Static data depreciates. Data loops compound. Every workflow completed improves accuracy, and the product gets smarter in ways specific to your vertical, not general knowledge horizontal AI already has. Fourth, they codify compliance. Regulation is becoming a moat. You can't just feed patient data into generic AI without HIPAA validation. Vertical players who've navigated regulatory complexity for years have infrastructure that's not easily replicated. The revenue model shifts too. Seat-based pricing dies when AI reduces headcount. Outcome-based pricing thrives - charge per claim adjudicated, per report generated, per decision made. Early vertical AI companies are hitting significant percentage of traditional SaaS contract values while growing massively. The "SaaSpocalypse" is real for generic software. For vertical players willing to transform, this is the biggest opportunity in a generation. The question isn't whether to move. It's how fast.

3 YEARS AGO: Enterprises spent $1.2M and 18 months implementing software 2 YEARS AGO: Teams of 15+ needed to operate each system 1 YEAR AGO: Businesses accepted these costs as inevitable TODAY: Vertical AI agents replace entire software systems AND the teams operating them. This is honestly the most fundamental shift in enterprise operations since cloud computing: SHIFT 1: FULL WORKFLOW AUTOMATION 2021 AI automated individual tasks within workflows 2025: Single AI agents handle complete workflows from start to finish → Medical billing bots handle entire revenue cycle vs. just data entry → Legal AI conducts full contract reviews vs. just flagging issues → Finance agents manage complete P&L reporting vs. just crunching numbers SHIFT 2: IMPLEMENTATION VELOCITY Legacy SaaS: 12-18 month deployment cycles Vertical AI: 30-45 day implementation → Fortune 500 manufacturer replaced 9-month ERP module setup with 6-week AI agent → Global bank deployed compliance AI in 5 weeks vs. 7 months for traditional RegTech → Insurance leader onboarded claims AI in 38 days vs. 240 days for legacy system SHIFT 3: MARKET SIZE EXPLOSION Traditional SaaS: $300B category Vertical AI: Projected to reach $3.7T by 2028 → Captures software + labor costs together → Addresses previous automation barriers → Creates entirely new capability categories While horizontal AI platforms captured headlines, vertical AI solutions quietly started taking over the enterprise landscape Companies that identify high-ROI AI replacement opportunities in the next 6 months will create uncatchable competitive advantages. The next enterprises to hit trillion-dollar valuations won't be running traditional software.

Notes from the field ✍ Agents are taking two very different paths into the enterprise: ▪️ Horizontal Agent Platforms: Sell the “What” These companies position as: “Build a fleet of agents” or “Your enterprise AI layer.” It’s a noun-first pitch. You are buying “agents” - powerful, general and, in the abstract, quite compelling. The problem? The buyer now has homework: define the use case, find budget, justify ROI. In other words, the hardest part of the sale gets outsourced to the customer. The usual response: - “Cool… what should we use it for?” - “Who owns this?” - “Which budget does this come from?” - “Can you help us design a use case?” Sales turn into co-creation and roadmaps resemble consulting. Most didn't set out to become systems integrators, but that is where gravity pulls them when the use case must be invented alongside the sale. These platforms are technically powerful but commercially blunt because they lead with capability (agents) instead of pain (a specific broken workflow). ▪️ Vertical Agents: Sell the “Why” They start with: “Reduce support cost per ticket” or “Resolve 60% of IT tickets autonomously.” Now the nouns are irrelevant. Call it an agent, a bot, or magic. What matters is that it attaches to an existing metric and budget. There is an incumbent to displace - no category creation required. Think Decagon in B2C support, Pylon in B2B support, Serval in ITSM. They’re selling outcomes, not AI. The vertical starting point may looks narrower. Increasingly, operators and CTOs are telling a different story: the fastest way to go broad is to start specific and earn your way out. Traditional vertical SaaS gets boxed in by its workflow. AI-native agents don’t, because the core asset is not the workflow but the layer that observes, orchestrates, and accumulates context across systems. Imagine: - A company launches a customer support agent - automating refunds, order changes, subscription issues. Soon they realize most issues are symptoms of pricing and billing friction. Embedded across CRM and billing, it starts triggering fixes, not just answering complaints. Support automation → control layer for customer experience and revenue leakage. - Another launches in IT - password resets, access requests, provisioning. Soon they realize most tickets stem from identity drift. Sitting across HR and IAM, it expands into security (privilege risk, audit) and finance (license optimization). IT automation → control layer for access entropy. Most enterprise workflows are artifacts of how software was purchased, not how work actually happens. You can have different tools across IT, Support, and Security all compensating for the same upstream limitation. Fix the root constraint and you’re not improving a workflow, you’re collapsing artificial boundaries between them. That’s the opportunity. Start vertical to get distribution, trust, and data. Expand horizontally by following the problem, not by declaring a platform.

I've been thinking about vertical SaaS lately. From 2018–21, only 24 % of 80 software IPOs were vertical SaaS. Why? Smaller customer pools and limited value capture kept the upside capped. AI changes the math. Instead of putting clipboards in the cloud, AI does the work itself—and that rewrites three fundamentals: 1. Value | Outputs, not clicks - Pre-AI apps sped up human workflows. - AI-native apps ship the deliverable—draft the brief, reconcile the invoice, triage the patient. When software does the work, it earns a bigger share of the value created. 2. Pricing | Usage, not seats - Seat licenses mapped to headcount. - AI teammates meter documents, calls, or tasks. 3. TAM | Core industry spend, not IT budget - Old ceilings: field-service software ≈ $5.5 B, restaurant POS ≈ $12 B, construction management ≈ $10 B. - New horizon: legal services alone top $1 T. When software augments the lawyer’s, nurse’s, or analyst’s job, it taps the services budget—not just the software line item. Takeaway: Bigger value → usage-based pricing → 100× larger markets. Bonus for founders: Many of these opportunities are untapped.

For decades, vertical SaaS in construction has focused on one thing: Digitizing the Status Quo. We took paper schedules and put them on a screen. We took physical folders and turned them into PDFs. We called it "digital transformation," but really, we were just creating high-tech storage units. The workflow enhancement, the connection of the physical and digital world with complex automation over the last few years that pushed for insights beyond just data, fueled the real digital transformation in the AECO market. AI changes the game because it moves from systems of record to systems of agency. In vertical SaaS—specifically for the AECO industry—AI doesn’t just store your data; it commands it. Here is why AI wins the vertical war: Deep Domain Moats: Horizontal AI (like ChatGPT) is a mile wide and an inch deep. Vertical AI built on proprietary datasets understands the nuance of a "change order" vs. an "RFI" and the legal/financial weight each carries. AI can't replace the why and the certainty that domain brings to the equation. Vertical AI captures institutional knowledge and turns it into a repeatable engine and advanced decision making but in the AECO world. The winners won't just sell software "seats"; they will sell project outcomes. Those outcomes can only be built of the train tracks of deep domain expertise and understanding of complex systems of systems that drive safety and reduce risk and go beyond project management or estimates..... #ConTech #ConstructionAI #VerticalSaaS #DigitalTransformation #AgenticAI

Peter Thiel just bet $220M on cow collars. Yes, you heard that right, cow collars. A New Zealand startup called Halter puts solar collars on cattle. The collar creates a virtual fence. Farmers move herds from their phone. This is not a boring AI pitch. Not a  "platform for everyone." Just one industry, one problem and nine years deep. Valuation: $2 billion. Cattle on collars: 1 million. Farms using it: 2,000. Here's the lesson for vertical SaaS founders. The real money is not in software for "all SMBs." It's in software for one industry, one workflow, one painful problem. Generalists fight on features. Specialists own the niche. If Thiel writes a check this big for cattle software, your vertical is not too small. It's the moat. So stop trying to sell to everyone. Pick the industry you understand. Go all in deep. The niche is the moat. P.S. Are you in vertical SaaS or Horizontal SaaS?

"We need to verticalize." Every SaaS company says this around $10M ARR. Then they create "industry experts" who know nothing about the industries they're suddenly "experts" in. 6 months later, conversion rates are meh and reps are confused. Why? Well, because verticalization isn't about reorganizing your sales team in so much as it’s about speaking human. When you sell generically, you sound like every other vendor. When you sell vertically, you sound like you actually understand their world. The data backs this up, btw. Companies that verticalize correctly see 10-15x conversion rate improvements. Not 10-15%. Ten to fifteen TIMES. But most companies screw it up because they think verticalization means hiring new people. Wrong. It means speaking differently. Here's how to do it right: 1. Start with your data rather than your dreams. Don't pick verticals because they "feel big." Pick them because you're already winning there without trying. Look at your last 100 closed deals. What industries bubble up? Start there. One company I know found 40% of their wins came from SaaS companies and nonprofits. Different industries, but similar buying patterns. THAT became their first two verticals. 2. Start at the top of the funnel, not the bottom. Don't hire vertical AEs first. Start with SDRs and marketing. Change your messaging. Build vertical landing pages. Create industry-specific case studies. Test conversion rates before you restructure comp plans. 3. Make the same product sound different. Remember that you're not building different products. You're translating the same product into different languages. - Generic message: "Our platform improves efficiency." - Healthcare message: "Reduce patient wait times and streamline HIPAA compliance." - Manufacturing message: "Cut production delays and optimize supply chain visibility." Same platform. Different pain points. Different outcomes. 4. Don't verticalize everything at once. Pick your biggest opportunity first. Get gangster at speaking that language. Build the muscle memory. THEN add vertical #2. Not before. Most companies try to tackle 5 verticals simultaneously and end up pretty shitty at all of them. 5. Measure what matters: conversation conversion, not team structure. Track conversion rates by industry before and after verticalization. If your healthcare reps aren't converting better than your general reps were, you're doing it wrong. tl;dr = verticalization works when you commit to becoming fluent in your customer's world. It fails when you think putting "Healthcare AE" in someone's title makes them a healthcare expert. So before you reorganize your entire GTM team, ask yourself: Do we understand these industries well enough to sound like insiders? If the answer is no, it’s better to start learning before you start hiring.

Over the past few weeks, I’ve spoken with several entrepreneurs who are developing all-in-one, AI-powered vertical SaaS applications and making significant progress. In contrast, the previous generation of SaaS companies typically consisted of horizontal platforms that excelled in one market segment, such as marketing automation or sales engagement. These products were comprehensive, serving a wide range of industries. Over time, many of these applications moved upmarket, focusing on mid-market and enterprise clients. In addition to horizontal players, numerous vertical SaaS applications have emerged over the last two decades. These typically followed a playbook of targeting small to midsize businesses in specific segments before gradually moving upmarket. They focused on delivering the most valuable features for their target audience while avoiding overly broad functionality. With the rise of AI-powered software development, including low-code platforms and vibe coding, robust cloud computing resources, and mature open-source ecosystems, building large-scale software quickly has never been easier. As a result, entrepreneurs are now creating AI-powered vertical SaaS products that combine the functionality of multiple horizontal tools into a single, purpose-built solution for specific industries. Instead of small business owners needing separate tools for their website, social media, marketing automation, CRM, and sales engagement, a single system now provides everything they need, tailored to their vertical. These solutions are offered at a significantly lower price point with greater ease of use. Moreover, because these products are directly tied to revenue through lead generation, proposals, and new business, their ROI is clear. My recommendation to entrepreneurs is to identify a vertical they or a colleague know intimately and consider building a comprehensive application that replaces multiple existing tools for that target customer. By leveraging AI, cloud infrastructure, and open-source technologies, they can deliver a fully integrated solution at a fraction of the cost.

3x Thesis: The “Blue-Collar SaaS” Rollup Everyone’s chasing the next vertical SaaS winner in finance, healthcare, or HR. Meanwhile, the trades are quietly becoming one of the best software rollup opportunities out there. What I call “Blue-Collar SaaS”.........job schedulers, quoting tools, dispatch systems, customer communications platforms, CRMs for trades. Plumbing, HVAC, electrical, roofing, landscaping, pest control. These industries run on tight schedules, field teams, and margin pressure. And most of them are still coordinating their operations on whiteboards, text threads and email chains. This isn’t about giving them another dashboard. It’s about owning the workflows that make money move. Here are three reasons this roll-up play is compelling: 1. Fragmentation creates opportunity. There are hundreds of small, niche software players built by former tradespeople. They know the workflow, but the products are clunky, don’t integrate, and lack modern UX or analytics. Most are sub-scale. No one owns the stack. 2. The use case is mission-critical. These tools handle quoting, scheduling, dispatch, and payments. Once embedded, they’re hard to rip out. You might churn a CRM but you’re not churning the thing that tells 12 vans where to be tomorrow. 3. Consolidation drives defensibility. Buy the fragmented vertical tools. Build a shared platform layer......payments, SMS/email, routing, reporting. Layer in AI for quoting, inventory, and dynamic dispatch. Suddenly you’ve built the ServiceTitan of contractors doing $2M–$15M a year. It won’t be glamorous. It’ll be FULL of onboarding headaches, support tickets, and integrations no one wants to pay for. But it will be profitable. Defensible. And eventually, indispensable. That’s the kind of platform PE used to get excited about. #ClaymorePartners #PrivateEquity #HomeServices #SaaS #VerticalSoftware

A founder friend last night asked me how we were able to scale to $30M ARR in such a "niche" market that hasn't really adopted software. The truth is, we didn’t “sell flooring software.” We rewired how the entire industry buys and sells. We didn’t win by pitching features. We won by owning the moments that actually move money, from the first click to the final invoice/payment. Here’s the 3 step playbook any vertical SaaS founder can steal 👇 👉 Step 1 - Build trust before the sale We didn’t cold-call our way to growth. We hosted the industry’s biggest conference FloorCon, packed with education (not just product pitches). We published guides, benchmarks, and customer success stories. Our marketing was content first. We became the trusted voice in flooring long before asking for a contract. Our goal was to be trusted advisors to the industry, not software sellers. 👉 Step 2 - Land the wedge We didn’t start with an ERP, CRM, or quoting tool. We started with the one thing every retailer wants: A website with more leads. One store went from 0 to 40 leads/month in 90 days. From then on, they were willing to buy anything from us. 👉 Step 3 - Earn the right to expand Once we owned the top of the funnel, we moved down. CRM → ERP → quoting → payments. Every new product made us harder to rip out. We weren’t a vendor anymore, we were the operating system for their business. Once you have leads, you need a way to manage them, and send them quotes. The takeaway for founders: - Pick the easiest “yes” and solve it better than anyone. - Expand where you’re already indispensable. - Use content + events to build trust before you sell. - Turn integrations into moats. - In a fragmented industry, trust compounds faster than ARR. Own the workflows your customers can’t imagine living without... and you don’t just win customers. You win the category.