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

September 25, 2024

AI Summary

5 min read

How to Build a $1M+ Vertical SaaS Business

The Case for Boring Software

Luke Sofinos has spent the last decade building a vertical SaaS business for trade schools—one of the most boring industries imaginable. And that's exactly the point. "Vertical SaaS isn't something that's new," he explains. "If you look back all the way to when first people really started creating software, use cases were all tied to businesses." But somewhere in the last 10-15 years, founders got seduced by the VC chase for billion-dollar unicorns and moved away from industry-specific software. The result: a lot more gravesites than winners.

Sofinos argues that vertical SaaS is "much more of a science than an art." The playbook starts not with an idea, but with picking an industry. You don't come up with an idea at all—"that's not the first step, that's not even the tenth step."

How to Score an Industry

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What you'll learn

1 (01:47) **Why Vertical SaaS is the Opportunity** - Luke explains his thesis: vertical SaaS is a return to industry-specific software, moving away from VC-driven "unicorn hunting" toward building enduring, profitable businesses in boring industries.
2 (04:37) **The Science of Picking an Industry (Not an Idea)** - Luke introduces his scientific, checklist-driven approach to selecting a vertical market before any product idea is formed.
3 (09:47) **Example: Why Machine Shops are a Prime Target** - Luke walks through a specific industry example that scores highly on his checklist.
4 (11:17) **You Don't Need Domain Expertise to Start** - Luke addresses the common fear of not knowing the industry, using his own experience with trade schools as proof.
5 (12:31) **Mapping the End-to-End Operation (The Toast S-1 Method)** - Luke explains how to visualize the entire customer journey and operations of a target industry to find software opportunities.
6 (16:38) **Follow the Money: Analyzing P&Ls and Competition** - Luke details the next steps: studying P&Ls to see where money is spent and analyzing existing software solutions.
7 (23:58) **Live AI Demo: Researching Machine Shops with ChatGPT** - Greg and Luke use ChatGPT to rapidly research the machine shop industry, demonstrating how AI can accelerate the initial research phase.

+ Full timestamped outline available in the app

Show Notes

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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