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Why niche SaaS scales so well

Software as a service is eating the world. Whether it’s payment processing, website building, or restaurant managing software, there’s a SaaS tool out there that handles it. The market for “vertical SaaS” is particularly strong, tripling in the last decade. Vertical SaaS offerings provide a full suite of functions to companies in a specific sector, allowing user companies to quickly scale and operate more efficiently. They don’t require licenses, which tend to make them more affordable and easier to implement.

While big tech companies have already captured most of the larger SaaS verticals, they’ve left many niche markets untapped, believing the returns won’t be lucrative enough to warrant the necessary investment of resources. That forces these niche businesses to piece together a myriad of general-purpose SaaS products to solve their business needs. So there’s a huge opportunity to build vertical software services that consolidate the various business functions of companies in these niche markets into one solution.

Vertical vs. horizontal software

Horizontal software is built to perform a specific business or departmental function and can be used by companies across various industries. Because these products address a single function, they lack features that can give you a holistic view of a business. Vertical solutions are tailor made with a specific industry in mind. Industry experts build these tools with nuanced knowledge on how to address various pain points with a unique feature set. For example, management software for gyms and salons will combine schedule management, payment processing, payroll, and marketing all in one place.

Vertical software can leverage industry-specific jargon, best practices, and training, and it can deliver new features as market shifts occur, allowing businesses to continuously serve customers at the best of their ability. Needs vary across industries. Fintech and healthcare companies will require more secure and reliable data storage systems. For example, Veeva offers several cloud-based services for life science and pharmaceutical companies. Users love Veeva for being a great platform for recording conversations between marketing teams and health practitioners. Whereas, hospitality businesses with high turnover may need tools with highly streamlined and efficient on-boarding workflows.

Vertical SaaS can often be even further customized to better fit a specific company’s needs — including needs that the company may not know it has.

Vertical SaaS providers are also well versed on the regulatory needs of the industry they target. In sectors where businesses are heavily monitored, SaaS tools will provide features that optimize compliance and support. The product will incorporate features to streamline the reporting process and ensure that the business is abiding by all rules of law. Lease-administration SaaS provider Lucernex, for example, helps companies comply with changing compliance regulations and has excellent customer support.

Customer support that understands industry-specific needs, language, laws, and norms can save companies time, effort, and money.

Low-touch vs. high-touch sales

When determining how to distribute SaaS products, providers take either a low-touch or a high-touch sales approach. In low-touch sales, there’s very little human interaction with the user organization. User organizations are free to discover the product on their own and the software manages check ins and followups. The vendor may outline specific use cases, reducing the amount of work the user organization has to do when figuring out if the product is best for its needs. On the other hand, in high-touch sales, a human helps the user organization throughout the entire buying and on-boarding process. There’s a much higher level of participation, with account managers maintaining personal and frequent contact with customers.

In niche vertical markets, a low-touch sales strategy will have greater success than its non-vertical counterparts. When the product is custom-built for its users, it advertises itself to a certain degree, by having a built-in understanding of the user organization’s needs and pain points. Vertical SaaS offerings are also designed to have an onboarding flow that fits into the user organization’s day-to-day activities. Since they don’t have to divert resources to actively manage customer relationships, vertical SaaS companies can invest those resources in further developing the product and managing hyper-unique client needs or situations.

Some companies start with low touch and progress to a higher touch model. Zendesk, for example, started with a low-touch model and eventually added sales teams to further cater to its users. As products develop and become more complex, the need for a human sales person may become more prevalent.

Birds of a feather flock together

Products of great value tend to sell themselves. So when marketing vertical SaaS tools in niche markets, your job is much easier. Customers don’t have to ask, “Is this relevant to me?” The more you can reduce friction in the buying decision, the quicker these products are adopted. The more vertical SaaS tools can narrow their focus, the more clear and exact their message becomes. There’s a consistent voice and value being presented, and that attracts the right customers.

As a vertical SaaS provider, you understand the world in which your customers operate. The conversations are richer, and your advice or recommendations are more precise. This aids in building trust and social currency. When prospective customers see the SaaS tool in use by a similar business, they are more likely to try it themselves. Which makes it easier for vertical SaaS solutions to reach potential new users.

TaskRabbit is an example of a company that targeted a specific demographic within a geographic area. By simplifying the life of moms who were typically over-tasked and strapped on time, the company built incredible rapport with its initial users that paid dividends. Those first users started sharing the site with their friends, and through word of mouth the TaskRabbit brand was established.

As more companies within an industry integrate a vertical SaaS product into their businesses, the SaaS provider gains a more complete view of the sector and the nuanced needs of certain customers. It can build specific features for one customer that can easily translate to the rest of the industry. These indirect network effects make vertical SaaS products more sticky and defensible from new market entrants.

Obi Omile is co-founder of theCut, a mobile barbering app in D.C. with over 1.8 million users.

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Entrepreneur – VentureBeat

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