Vertical market SaaS companies are great businesses with efficient customer acquisition and sticky solutions. But a single industry focus can also have speed bumps that must be managed well, or you’ll get stuck.
Here are the five most common vertical SaaS challenges that founders can expect at some point:
1) Industry ups and downs.
Once you are past the scrappy startup stage, industry momentum and cycles will start to affect your pipelines and revenue growth.
Construction, SaaS (that’s us), manufacturing, real estate, retail, and most other industries have good and bad years. It’s not a reason to switch your focus, but it takes patience when your industry slumps.
2) Industry crises.
The benefits of a single industry focus were erased during COVID-19 when many industries were hurt (and helped) by the massive global disruption. Survival focus, massive pivots, and sometimes massive growth happened quickly to vertical SaaS companies. There were winners and losers by industry.
Some crises affect single industries, too. This summer, a major dealer management software platform was hacked and shut down for months, slowing down the North American automotive software industry.
3) Powerful industry platform players.
Many industries have huge, monopolistic software providers that wield absolute power that can make or break a small startup. Big healthcare EHR or legal software players often limit access to APIs and their customers, stifling innovation but maximizing their market position.
4) Regulations.
Most horizontal software companies (like CRM or marketing tools) don’t face regulatory shifts, but many vertical-focused companies do. These can slow down market growth and add uncertainty to planning cycles.
5) Seasonality.
Most software companies face the summer doldrums or end-of-quarter spikes, but some vertical SaaS markets have major seasonal shifts that must be planned for. Education and government software have annual buying cycles where new deals and cash almost stop for months.
These challenges exist in most horizontal markets but become more important and acute for SaaS vendors serving single markets.
I love vertical SaaS companies. They make up just over half of all software companies globally. They are usually efficient to start and grow and don’t attract over-funded competitors.
They can also come with some unusual challenges that must be managed wisely, especially as your company grows.
