I read Pete Flint’s The Verticalization of Everything this week. It’s a master class in strategy that lays out the case for building specific software for the needs of a specific business type. By zeroing in on software that fits a business really well, you create a moat against the software Platforms (with a capital P) that require significant customization to feel like they work for your business without an IT staff.
But what does this mean in practice? To hear what this sounds like, listen to CEO Daniel Lang of Mangomint discuss how you find, customize, and refine software for the needs of a business that most people don’t think of as a “tech-enabled” category when they think about building software (disclaimer: I work there).
As you listen to this podcast, ask yourself how much you hear about building software. There is much more here about building an operating system for a business type not traditionally served by software.
The goal: create a valuable customer experience not only for the business but also for the clients of that business. It’s a pretty interesting mental switch from a strategy of building an all-powerful platform that can serve any business (but needs to be customized to the needs of that business).
Finding Value in the Negative Space
Drawing teachers point at “negative space” – the space between objects – as a key value in understanding how to draw a scene and create proper perspective.
Finding the negative space in software means thinking about user behavior that is not explicitly defined. Make it easier for regular people to get their work done? They will want to use the software more often because it will become the regular thing they do.
You have a much better chance of finding the “negative space” in software when you start by mapping the regular workflow
Read Pete Flint’s essay above and you’ll realize a few things are happening that favor building verticalized software as a strategy:
-
The cost of building for a specific market is high for incumbents. Platform providers cannot build for small(er) markets and must focus on immediate multi-billion dollar opportunities
-
It’s hard to gain domain knowledge in each small market.
What makes sense in one market doesn’t automatically work everywhere -
Improving share of software spend from a large number of underserved customers can be lucrative.
Start with key workflow and expand to adjacent functions
In this case, the “negative space” available is the market segment and expansion that occurs by designing an experience for an underserved set of customers.
Zeroing in on value
Pete Flint writes about focusing on the customer experience of vertical software as a differentiator. By using new technology, it’s now possible to create a hyper-specific feature that depends on the workflow of the business to deliver value.
For example, Mangomint has a feature to automate marketing tasks called Flows. Businesses using this software can easily send a booking reminder, advise on pre-appointment instructions, or send other kinds of reminders. This is a pre-built customer experience for the vertical of salons and spas.
If you were to ask Salesforce, Hubspot, or any other horizontal software provider whether they would build a feature to remind customers based on application data, they would say: “of course! You can build that yourself with our platform.”
As a salon owner or own another kind of business served by vertical software, it’s very unlikely you would do that. So building software specifically to serve the needs of those customers is a good way to gain a selling advantage.
Removing work vs creating new work
Vertical software works because you build a better customer experience by focusing on a few key workflows and making them great. Instead of building an infinite number of customizable features, it’s cheaper to build a hyper-specific feature that does fewer things well.
It doesn’t work for every product or every market. If you start with a wide product and try to make it amazing for a niche, you might succeed and end up with an unsustainable commercial structure.
But when it does work, it makes selling value so much easier. You end up removing work for every interaction and make the customer experience of using great vertical software magical.
What’s the takeaway? The wave of software is moving toward vertical software. By building well-crafted features that are customized to the workflow of that vertical, businesses that take this approach build a moat where they can expand into adjacent software spend.
