How to build a $1M+ vertical SaaS business (step-by-step guide)

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Sep 25, 2024

In this engaging discussion, Luke Sophinos, Founder & CEO of CourseKey and a vertical SaaS advisor, shares his expert insights on building a successful vertical SaaS business. He highlights the importance of selecting the right industry and understanding its intricacies. Luke emphasizes the power of wedge products as effective market entry tools and explores how AI can enhance the ideation and validation process. He also discusses critical go-to-market strategies and the tremendous potential in often-overlooked niches like the machine shop sector.

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INSIGHT

Vertical SaaS Opportunity

Vertical SaaS focuses on specific industries, unlike broader software solutions.
It presents opportunities for strong retention and enduring businesses, even in less glamorous sectors.

ADVICE

Industry Selection

Choose an industry, not an idea, when starting a vertical SaaS business.
Analyze market size, fragmentation, and segmentation for ideal opportunities.

ANECDOTE

Machine Shop Example

Machine shops represent a strong vertical SaaS opportunity due to their market size and segmentation.
They have a $240 billion revenue, 22,000 companies, and diverse business sizes.

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Join me as I chat with Luke Sophinos, Founder & CEO of CourseKey, as we discuss the frameworks and strategies for building a successful vertical SaaS business. Learn how to find, validate, and launch SaaS opportunities!

Timestamps:
00:00 Intro
01:51 Why Vertical SaaS?
05:46 How to pick your vertical
11:05 Understand the industry inside-out
19:11 Analyze existing solutions
22:02 Automating the ideation and validation process with AI
35:04 Go-to-market strategy is CRITICAL
40:19 The power of the wedge product
49:35 Pricing framework

1) Why Vertical SaaS?
• Market often overlooked by VCs chasing unicorns
• Opportunity to build enduring businesses with strong retention
• Still massive potential in 2024, even in "boring" industries

2) How to pick your vertical:
• Focus on industry, not idea
• Look for:
a) Large market size ($1B+)
b) Fragmented (many SMBs)
c) Mix of small, mid-market, enterprise

3) Understand the industry inside-out:
• Map end-to-end operations
• Get hands on P&Ls
• Follow the money - where are they spending?
• Identify areas still using pen & paper

4) Analyze existing solutions:
• Look for legacy providers
• Identify where they're using horizontal solutions
• Find gaps where AI/FinTech could add value

5) The power of the wedge product:
• Your "get in the door" offering
• Should be:
a) Easy to implement
b) Solves a critical problem
c) Ideally free or low-cost
• Example: Roofer․com's proposal tool

6) Go-to-market strategy is CRITICAL:
• Many industries require relationship-based sales
• Product-led growth is ideal (but rare)
• Get creative: Industry newsletters, memes, etc.

7) The payments opportunity:
• Owning the transaction can 10x your market size
• Build before/after transaction, then capture it
• Example: Toast in restaurants

8) Pricing framework:
• Understand current spend on problem you're solving
• Price based on ROI you deliver
• Aim for 20-50% of value created

9) Keys to success:
• Only build products that:
• Increase revenue
• Decrease costs
• Prevent churn
• Maintain compliance

10) Validating ideas:
• Don't just Google search
• Talk to actual businesses
• Offer to buy lunch and shadow operations

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