Traditionally, large industries like energy, manufacturing, and construction adopt new systems technologies about once per decade.
Over the last 5-years 4 megatrends have converged on these sectors to break this established principle:
- the consumerization of B2B software
- increased digital expectations of end-users
- tailwinds associated with sustainability and digitization
- an explosion of connected assets and emerging technology
Thanks to these trends, founders and investors in these sectors can now leverage the traditional high-growth enterprise SaaS playbook.
- Build a great product
- Build a repeatable go-to-market model
- Add capital and execution accelerate adoption
The scale of number three here has surpassed everyone's expectations, and there's no reason to believe vertical SaaS will be any different.
The best growth equity firms realize market dynamics change quickly, secular tailwinds don't last forever, and once your secret is out, competitors appear out of thin air - building a lead matters.
This playbook created "category" decacorns like Zoom (communications), Workday (HR and Payroll), and Salesforce (CRM).
But, as we enter a new adoption cycle for digitally nascent or emerging sectors (Eg. solar), vertical SaaS companies, particularly those that own control points within customers, are poised for a similar run.
Defining Control Points
You're likely familiar with the term "systems of record" which is control point number one. Examples of SORs include point of sale, CRMs, etc...
Control point two is the back office system where everything reconciles. The best example is payment systems.
By definition, control points are difficult to replace, and unless the market is pen and paper, competition usually comes in the form of legacy software with high barriers to entry.
However, control points are the last software packages customers will eliminate in economic downtimes. This combination creates "sticky" customers post-acquisition making the SaaS playbook above the perfect fit.
Control points and systems of record create stickiness in three primary ways:
- Workflows - create the system all other systems integrate to
- Data - create the system that holds the most critical information - bonus points for enabling other technologies like machine learning
- Account ownership - the sponsor of the solution is a high-ranking official within the customer organization
Owning Multiple Control Points
Ideally, vertical SaaS companies will eventually capture multiple control points either through M&A or product-led growth.
As we've seen with platforms like Procore and Veeva, owning control points provides enormous benefits.
- Automation from integrated workflows and unified data models
- Ability to capture incremental spend and efficient growth
- Increased durability and lower churn due to internal network effects
Veeva could be the best case study in history on owning two vastly different control points in the same vertical.
Founded in 2007, Veeva started as a CRM for pharma sales reps before launching Vault in 2011. Vault focuses on the core content management needs for clinical trials and regulatory compliance. Same customer, different points of control.
Vault now represents over 50% of Veeva's total revenue and is its fastest-growing product.
Results like Veeva along with Procore and nCino show that the full potential for vertical SaaS is much larger provided you're in the right sector.
Given the TAM of sectors like energy, manufacturing, construction, and automotive, it's almost impossible to imagine global firms won't be built serving these industries as they navigate a new age of digital adoption.
The playbook is clear - win a control point, acquire as many customers as you can, and unlock new profit pools through customer service and trust. As with all things, the hard part is execution.