Building a $1M+ Vertical SaaS Business

Pick an industry, not an idea.

Start by scoring industries on revenue size, number of companies, and healthy segmentation (mix of SMB, mid-market, enterprise). Example: machine shops ($240B revenue, 22k companies, fragmented).

Why: A well-segmented market lets you start small and climb up-market without massive upfront capital.

"I think vertical SaaS is much more of a science than an art... you have to focus on an industry... not an idea."

Avoid top-heavy industries dominated by a few large players.

Industries with only thousands of enterprises (e.g., 2,500 surgical hospitals) require heavy feature sets and long sales cycles.

Why: SMB-friendly segments allow faster entry with minimal features and lower CAC.

"I hate top heavy industries... Selling into the enterprise is incredibly difficult."

Map the entire end-to-end workflow of the target business.

Visualize every operational step—e.g., Toast’s restaurant map or CourseKey’s trade-school journey (admissions → training → placement).

Why: Reveals paper processes, legacy software gaps, and horizontal-tool stitching that a vertical solution can replace.

"you have to map out the entire customer journey and the entire operations of the businesses within the industry"

Follow the money via P&L deep dives.

Collect P&Ls from bankers, public filings, and owners to see where dollars go—people, software, compliance, etc.

Why: Identifies high-cost pain points that software can reduce or monetize.

"get your hands on as many P&Ls as possible... understand where are these companies spending money."

Validate workflows in person with free shadowing.

Offer to buy lunch for shop owners in exchange for a day of observation; blue-collar owners are surprisingly open.

Why: Desk research ≠ reality; on-site validation confirms paper processes and user pain.

"I'll buy you guys lunch today if you just let me shadow the operation for today... you'd be shocked."

Launch with a wedge product that solves one painful step.

Choose a high-value, poorly served workflow (e.g., Roofer.com’s instant roof-quote tool) that’s quick to deploy and proves credibility.

Why: Reduces time-to-value, lowers switching friction, and seeds upsell paths to the eventual all-in-one platform.

"nobody starts there, nobody ever starts there... find an area where it's on paper... it's your reputation prover."

Design wedge products to capture the transaction.

If the wedge sits before or after payment flow, integrate payments later to unlock percentage-based revenue (e.g., Toast’s 1-2% take rate on $1T restaurant spend).

Why: Turns a $120 M SaaS TAM into a multi-billion-dollar payments TAM.

"if you can build a wedge product before or after the transaction, you can eventually own the transaction."

Model distribution before building.

Study how prior vertical SaaS winners acquired first 10, 100, 1k customers; many rely on outside sales, but product-led or marketing-led motions scale faster.

Why: Great product without distribution dies; GTM constraints determine ceiling.

"you have to be understanding of the distribution piece... a great product without users is a shitty product."