Vertical Software Series - Post #1: What is Vertical Software?
Based on the success of our portfolio company Autolab 's Vertical Software solution for the extremely messy and informal Auto Repair industry in Mexico and Colombia, we were inspired to explore the attractiveness of the Vertical Software approach on other large, fragmented, and informal industries in LatAm. We took our learnings from the Autolab experience and transformed them into a LatAm-specific Polymath Ventures framework for evaluating an industry’s likelihood of adopting Vertical Software (or Vertical SaaS, as it is more commonly known) solutions. We applied our framework to many different industries, and we are extremely excited about the potential for this business model to bring many massive, foundational industries in LatAm into the digital age and become $1B companies while doing it. We'll share our framework, research, insights, and findings via a series of posts called the Vertical Software Series. In this first post, we'll start by defining Vertical Software so that we are all on the same page.
What is Vertical Software?
Unlike Horizontal Software (or Horizontal SaaS, as it is more commonly known), which offers generic solutions that can be used across various industries, Vertical Software solutions are designed to address the unique requirements, workflows, and challenges of specific verticals or industries. Vertical Software solutions typically include the following characteristics: (1) Industry-specific features with specialized tools, integrations, and customization options to address specific industry requirements, (2) Industry-specific knowledge of regulations, compliance standards, best practices, and emerging trends, and (3) Integrations with other industry-specific software tools, platforms, or data sources to streamline processes, improve efficiency, and enhance the overall user experience. Examples of successful Horizontal Software companies include Salesforce, Adobe, Slack, and Zoom. Examples of successful Vertical Software companies include Toast, ServiceTitan, Procore, and MINDBODY.
What are the advantages of Vertical Software?
Why build a software solution specifically tailored to one industry, which will by definition have a much smaller TAM than a horizontal solution? Because it can solve the specific needs of that industry better than a horizontal solution, resulting in a number of advantages:
What are the tradeoffs for Vertical Software?
Vertical Software solutions also have their tradeoffs:
What's next?
Please be on the lookout for post #2 which will be released next week and will cover why we're excited about the potential of Vertical Software solutions in LatAm.
We want to build with you!
If you are a founder who is building or thinking about building a Vertical Software solution for the LatAm market, we would love to hear from you. Please reach out via email at startups@polymathv.com or via LinkedIn by writing our Investment Director Drew Hallman .
Read the full article on our website:
*In the market, "Vertical SaaS" is a much more common nomenclature than "Vertical Software", however, we believe the latter better describes the solutions that we are seeing and that we hope are built in LatAm because it is very difficult to scale pure SaaS models in LatAm for many reasons that we will cover in much more depth in subsequent posts.