Horizontal software faces intense global competition, pushing companies to develop vertical depth for differentiation. While horizontal solutions target sizable Total Addressable Markets (TAM) with potential for rapid growth, they often struggle with profitability and differentiation.
In contrast, purpose-built B2B vertical software, often overlooked, can be 2.5 times more profitable in terms of EBITDA, offering significant returns if executed well. This makes it highly attractive for private equity investment.
From our work with Nordic B2B SaaS, we identified three key insights:
Geographic Scalability and Market Leadership: Vertical software solutions have high potential for geographic scalability, especially in operations like CRM and project management. However, local legislation can pose challenges. Establishing market leadership involves leveraging M&A for growth, focusing on cross-selling, and ensuring seamless process integration to avoid value erosion
AI and Automation Opportunities: The integration of vertical AI agents significantly enhances the value proposition by automating complex workflows, reducing operational costs, and thus expanding the TAM. This shift allows vertical SaaS providers to increase customer lifetime value and tap into traditional labor spend
Competitive Moats and go-to-market levers: To maintain market leadership, vertical software firms need to strengthen competitive moats by capitalizing on scale, boosting customer stickiness, and achieving vertical critical mass. Growth can be driven by module expansion and upselling, supported by a robust product suite and strategic partnerships
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