Verticalization, CEO AI Stack, 10x thinking and Startup CTO Cheat Sheet

Never think twice about investments in yourself

Good morning

Substack launched a livestream option. I’m down for doing one and will plan something for the first week of October - stay tuned :)

In today's edition, among other things:

• The Era of Verticalization

• CEO Al Tool Stack

• Should a Feature be Free or Paid?

• 10x Thinking

• Working for the Future 2024

• How Perplexity Works?

• Moving to US as a Startup - worth it?

• A Startup CTO Cheat Sheet

• How to Launch a Brand in 2024

Onwards!

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CEO Al Tool Stack

From Bessemer:

Some AI driven alternatives I use include Granola, LanguageTool, DeepL, Superhuman, Raycast, Flow.

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The Era of Verticalization

From NFX:

AI is about to make the vertical SaaS pool 10x deeper.

There are two major factors driving this trend. First, there’s the opportunity created by AI. Initially, we wondered if AI would lead to the consolidation of many vertical companies under one umbrella, or allow industry incumbents to build their own software. But that’s not the case for one large reason: A generalist model is good for everyone, and great for no one. Great AI products need to be trained by teams with specificity, data, and expertise.

Delivering “great” is where a startup can begin to gain ground among many “good” legacy options.

Second: many horizontal B2B SaaS companies are vulnerable to unbundling right now. With a great UX, powerful vertical specific features and AI that significantly cuts cost or delivers exceptional value, startups may be able to complement or displace legacy systems.

Verticalization refers to the emergence of companies built to solve the specific needs of unique industries and customer segments. From the AI angle perspective vertical solutions can deliver unparalleled value by focusing relentlessly on the unique workflows, data models, and user behaviors of specific industries.

Horizontal platforms like Salesforce and Microsoft Office have traditionally dominated by providing broad, one-size-fits-all solutions. As industries mature and demand specialized functionality, vertical players focused on specific industries and use cases are gaining an edge (not always, however due to platform, scale and distrubition effects)

How to approach building a vertical business:

• Identify acute industry pain points

• Build domain-specific workflows that encode deep industry expertise

• Win by depth rather than breadth

• Leverage data network effects by aggregating industry-specific data across customers

Verticalization is playing out across industries, from healthcare and construction to banking and real estate - you can verticalize across many industries. Vertical solutions also don't just replicate generic features, but encode domain expertise to automate industry-specific complexities.

The value in verticalized software is frontloading industry-specific workflows and data integrations that are needed by a large percent of the customer base on day one.

For entrepreneurs, it’s a chance to build dominant businesses by identifying underserved verticals and diving deep into the domain. For incumbents, the verticalization wave poses both threats (e.g., vertical challengers chipping away market share) and opportunities (e.g., acquiring or building their own vertical offerings).

The future belongs to entrepreneurs bold enough to build vertically - and go deep before going broad.

Here’s a16z:

Vertical software markets tend to have winner-take-most dynamics, where the vertical SaaS business that best serves the needs of a specific industry often becomes the dominant vertical solution. 

The first wave of VSaaS, cloud, brought services online (e.g., Shopify for e-commerce, ServiceTitan for service workers). The second wave, cloud + fintech, increased revenue by enabling VSaaS companies to embed financial services within their software offerings. For example, by embedding payments, lending, payroll, and more, Toast is now at $1.5 billion ARR and makes over 80% of its revenue from financial technology solutions. 

We are now witnessing the beginning of a third wave of vertical SaaS: cloud + fintech + AI. This third wave, which is the most impactful force in the category to date, further expands the surface area of VSaaS by turning Labor into Software.

And some examples:

The key difficulty and opportunity is to identify underserved verticals. That’s not easy.

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Should a feature be free or paid?