![]() The scope of replacing these systems is huge, and the cost when an old system breaks or a new one fails to meet its promise is high - especially in a regulated environment where mistakes may result in a congressional hearing (as Southwest Airlines could attest). ![]() Ironically, the reason for this technical debt is often that these industries were early adopters, and were among the first to implement emerging digital technologies when they became available decades ago. If it feels like technology buyers in these spaces move slowly and resist change, the reason is that the critical institutions they oversee are often built on heavy, legacy systems that contain a lot of technical debt. The belief that vertical software buyers either aren’t as smart or are unmotivated stems from a complete misunderstanding of the challenges they face. This is a lazy stereotype, and it’s time to put it to bed. Objection 2: Vertical buyers aren’t motivated enough to drive massive transformation Chase spends $14B (11% of revenue) annually on technologyĮven smaller segments like transportation and agriculture still represent massive opportunities, and these small segments are often the most neglected, meaning that innovative products that bring real value can gain market share quickly.If they spent only 5% on technology that would be $700M! The largest contractor in the US, Turner, generates over $14B in revenue.Oracle's Cerner alone does over $5B annually selling hospital software in what some estimate to be a +$30B software market.Ironically, these verticals represent the majority of American GDP when put together, and in many cases, are the dominant drivers of American innovation and growth.Īs proof of the opportunity in segment-specific software, here are a few facts to consider: ![]() Leading fields like healthcare, insurance, and construction represent huge portions of the economy, and each contains many billion-dollar corporations with hundreds of thousands of employees. The most frequent objection to vertical SaaS is simply that the TAM is too small to produce a venture-scale outcome. These are the most common objections I see: Objection 1: Vertical = small So why the aversion from some investors? My observation is that three wild mischaracterizations drive money away from vertical software, and it’s time that we collectively change our thinking and recognize the opportunity within some of the largest industries in the world. Segment-specific startups frequently outperform their horizontal counterparts and do so with greater efficiency, lower churn, and simpler GTM motions. Many of the largest public software companies operate in vertical segments, and yet, I’ve encountered countless investors who - in their undying quest for a piece of the next Slack or Uber - treat massive industries like healthcare or logistics like they’re too small for investment. Time and time again in my career in venture, I’ve been surprised at the negative attitude I’ve encountered from VCs at the thought of investing in vertical SaaS.
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