How to build a $1M+ vertical SaaS business (step-by-step guide)
Summary
TLDREl video aborda la creación y éxito de empresas de SaaS vertical, las cuales son software desarrollados para necesidades específicas de un sector. Luke Sfinos, un experto en el tema, detalla un enfoque estratégico para identificar y capitalizar oportunidades en mercados verticales. Resalta la importancia de seleccionar el mercado ideal basándose en características como el tamaño del mercado y la segmentación, y entender completamente el funcionamiento interno de la industria objetivo. Se introduce el concepto de 'producto de cuña' como una estrategia inicial para ganarse la confianza del cliente. Sfinos también enfatiza la relevancia de implementar pagos integrados para expandir el mercado total disponible de una empresa de SaaS vertical.
Takeaways
- 📘 Aprende sobre SaaS vertical y su enfoque en industrias específicas.
- 🔍 Identifica oportunidades mediante el análisis de operaciones industriales.
- 🎯 Elige el mercado correcto considerando tamaño y segmentación.
- 💡 El producto de cuña es clave para entrar en un mercado específico.
- 💰 Implementa pagos integrados para expandir el mercado potencial.
- 🛠 Evalúa las operaciones de las empresas para optimizar con software.
- 📊 Analiza los P&L de las industrias para encontrar áreas de mejora.
- 👥 Participa con industrias para validar necesidades de software.
- 🚀 SaaS vertical facilita crear soluciones optimizadas para un sector.
- 🤖 Usa la IA para investigar y planificar estrategias de mercado.
Timeline
- 00:00:00 - 00:05:00
Luke Sfinos es un experto en SaaS vertical y comparte su método para crear negocios exitosos en este ámbito. Aunque muchos lo ven como algo aburrido, eso representa una oportunidad. La idea es enfocarse en una industria específica y crear un software altamente especializado, lo que sigue teniendo potencial sin necesidad de una gran financiación de capital de riesgo.
- 00:05:00 - 00:10:00
Sfinos describe la importancia de elegir la industria correcta para SaaS vertical, observando factores como el tamaño del mercado y la segmentación. Recomienda centrarse primero en la industria y luego identificar oportunidades dentro de los procesos de negocios que se puedan digitalizar o mejorar con software especializado.
- 00:10:00 - 00:15:00
Un ejemplo mencionado de una industria con potencial es la de los talleres mecánicos. Sfinos sugiere analizar las ganancias actuales, identificar procesos donde se puedan reducir costos o mejorar la eficiencia, y estudiar cómo operan actualmente estas empresas, incluyendo con qué software trabajan.
- 00:15:00 - 00:20:00
Sfinos destaca la importancia de estudiar la competencia en la industria seleccionada, ya sea software legado o soluciones fragmentadas. Esto ayuda a identificar áreas donde una solución integral o específica podría ofrecer un gran valor. Además, pueden existir procesos que aún se manejan con papel, representando oportunidades para digitalización.
- 00:20:00 - 00:25:00
Sugiere usar IA para investigar rápidamente aspectos preliminares del mercado, aunque los datos deben ser validados personalmente. Esto incluye aspectos de los procesos de operaciones y software comúnmente usados. Sin embargo, la validación en el campo es crucial para garantizar la precisión de la información recopilada.
- 00:25:00 - 00:30:00
La importancia de desarrollar un "producto de cuña" es clave. Este producto inicial permite entrar al mercado resolviendo un problema específico y demostrando su valor rápidamente antes de expandir la oferta a un conjunto completo de soluciones. Ejemplos como Roofer.com muestran cómo empezar con soluciones básicas que crecen con el tiempo.
- 00:30:00 - 00:35:00
Incorporar soluciones de pago es esencial para escalar en el SaaS vertical, convirtiendo las transacciones en una parte del servicio ofrecido. Esto no solo maximiza el potencial de ingresos sino que también integra al cliente en el ecosistema del producto, como en el caso de Toast en la industria de restaurantes.
- 00:35:00 - 00:40:00
Entender la forma de llegar al mercado es vital, pues algunas industrias pueden requerir enfoques de ventas exteriores o marketing más directo. Un conocimiento detallado de las estrategias de adquisición de clientes y el comportamiento de la industria ayuda a asegurar un crecimiento efectivo.
- 00:40:00 - 00:45:00
Sfinos aconseja que al fijar el precio de un producto SaaS, se debe tener en cuenta cuánto ahorra o hace ganar al cliente el software comparado con sus métodos actuales. De esta forma, el precio debe basarse en el valor proporcionado, asegurando que sea justificado para el cliente.
- 00:45:00 - 00:54:24
Finalmente, Sfinos menciona que tiene recursos adicionales para aprender y desarrollar ideas de SaaS vertical como su newsletter y el 'Vertical SaaS Bible', proporcionando herramientas y ejemplos detallados para aquellos interesados en adentrarse en este sector.
Mind Map
Video Q&A
¿Qué es SaaS vertical?
SaaS vertical se refiere a software desarrollado específicamente para atender las necesidades de una industria en particular, a diferencia de SaaS horizontal que se aplica a múltiples industrias.
¿Por qué elegir un negocio de SaaS vertical?
Es importante porque permite enfocarse en crear soluciones específicas para un solo sector, optimizando procesos y aumentando la retención de clientes.
¿Cómo elijo la industria correcta para un SaaS vertical?
Elige una industria basando en factores como el tamaño del mercado, la segmentación de empresas y las operaciones internas que puedan ser optimizadas a través del software.
¿Cómo puedo identificar oportunidades en una industria?
Se recomienda observar los procesos dentro de las empresas del sector, identificando dónde se pueden aplicar mejoras con tecnología.
¿Qué es un producto de cuña?
Un producto de cuña es una solución inicial y sencilla que sirve para ingresar a una industria, ganarse la confianza del cliente y luego expandir las ofertas de productos.
¿Cómo se lleva un producto de SaaS vertical al mercado?
Puede ser difícil ya que muchas veces requiere ventas externas intensivas, pero la adopción de un producto de cuña puede facilitar el proceso.
¿Qué ventajas tiene SaaS vertical sobre otros modelos de negocio?
La ventaja está en la posibilidad de crear productos muy específicos que resuelvan problemas críticos de una industria, generando ingresos sustanciales y lealtad del cliente.
¿Por qué analizar los P&L de las empresas de una industria?
Es crucial para identificar en qué áreas se están dedicando más recursos y cómo se pueden optimizar o reducir mediante software.
¿Cómo se debe establecer el precio para un SaaS vertical?
Se debe buscar cobrar menos que el beneficio económico aportado por el software, a menudo entre el 20% y 50% del ROI.
¿Cómo pueden los pagos integrados ampliar el mercado total para SaaS vertical?
Puede ocurrir cuando una empresa SaaS vertical incluye servicios de pago o transacciones dentro de su oferta de software.
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- 00:00:00vertical sass you've probably heard the
- 00:00:03name and you're probably like yeah I
- 00:00:06wish I can create a vertical sass that
- 00:00:07prints millions of dollars well I
- 00:00:10brought on the number one guy who talks
- 00:00:12about vertical SAS he's got the vertical
- 00:00:16SAS Bible and uh he spills all his
- 00:00:20secrets on the step-by-step way to
- 00:00:22create a vertical SAS this is a guy Luke
- 00:00:25sfinos who's got a vertical sass
- 00:00:27business that prints Millions himself uh
- 00:00:29he's a vertical SAS advisor to Atomic
- 00:00:33which builds billion dollar businesses
- 00:00:35like him and hers and uh this might not
- 00:00:39be the most exciting podcast I've ever
- 00:00:41done might actually be a little bit
- 00:00:42boring and that's the point uh vertical
- 00:00:46SAS is boring but uh that's why there's
- 00:00:49so much opportunity and we do use AI to
- 00:00:52come up with some some fun ideas so
- 00:00:56watch the watch the whole thing and and
- 00:00:58take some notes enjoy
- 00:01:01[Music]
- 00:01:10all right I got my man Luke to come on
- 00:01:13and teach us about vertical SAS vertical
- 00:01:18software and I know it sounds boring but
- 00:01:20if you stick to the end of this you're
- 00:01:22you're going to come out with a lot of
- 00:01:25knowledge he's gonna he's GNA teach us
- 00:01:27the vertical SAS Bible and and uh I'm
- 00:01:29excited to dig right into it awesome
- 00:01:32Greg thanks for having me man looking
- 00:01:33forward to it so where do we start you
- 00:01:37know do we want to start with why
- 00:01:39vertical
- 00:01:40SAS yeah let's do that let's start with
- 00:01:42why vertical SAS so I think you know my
- 00:01:45thesis on this is is relatively simple
- 00:01:48and straightforward and you know
- 00:01:50vertical SAS isn't something that's new
- 00:01:53um you know if you look back all the way
- 00:01:55to when first PE people really started
- 00:01:57creating software use cases were all
- 00:02:00tied to businesses it was tied to how
- 00:02:02can we better optimize better you know
- 00:02:05create more efficiency right create cost
- 00:02:07Savings Time Savings Revenue lift blah
- 00:02:09blah blah but I think somewhere in the
- 00:02:13last kind of 10 15 years a lot of that
- 00:02:16got lost and we got into the sexy you
- 00:02:20know VC let's
- 00:02:23chase massive billion multi-billion
- 00:02:25dollar opportunities and go unicorn
- 00:02:28hunting and so what happened is you had
- 00:02:30a bunch of Founders that moved away from
- 00:02:33industry specific software well why
- 00:02:36because they're they're Market constrain
- 00:02:38you're only going after one market and
- 00:02:41you know for a VC there's just not a lot
- 00:02:43of of of individual industries that can
- 00:02:47create these these extraordinary
- 00:02:49outcomes that they need to see and so
- 00:02:50all these Founders started chasing
- 00:02:52really broad kind of startup Concepts
- 00:02:55and obviously you had huge winners in
- 00:02:57that but you had a lot more uh you know
- 00:03:00grave sites so I'm I've looked really
- 00:03:03I've spent the last decade building you
- 00:03:05know a vertical SAS business in trade
- 00:03:07schools which is probably one of the
- 00:03:08most like boring Industries you can you
- 00:03:11can contemplate but there's so much
- 00:03:13opportunity for still today in 2024 to
- 00:03:17not go build the shiny sexy thing with
- 00:03:20Limitless you know Market size and hone
- 00:03:23in and focus on one industry you know
- 00:03:26one type of
- 00:03:27business uh and build software tailored
- 00:03:30for them uh and build really great
- 00:03:33businesses that are enduring strong
- 00:03:34retention you know they don't
- 00:03:36necessarily have the growth rate that
- 00:03:37the VC guys want to see in in most cases
- 00:03:40but uh you can build great businesses in
- 00:03:43these these settings so I'm I'm
- 00:03:45obviously bullish on it I've dedicated
- 00:03:46my career to it and that's what I do
- 00:03:50cool yeah and and it's working like
- 00:03:51you're making millions of dollars a year
- 00:03:53in revenue and through the process I
- 00:03:55think and that's why I wanted to bring
- 00:03:56you on is you've kind of figured out a
- 00:03:59playbook for the different types of
- 00:04:02vertical SAS businesses had to think
- 00:04:05about wedges which is like a wedge
- 00:04:07product which is something I really
- 00:04:08would love for you to get into um how to
- 00:04:11think about picking a market for your
- 00:04:14vertical SAS and maybe i' I'd also just
- 00:04:18love you to go through pricing like how
- 00:04:20do you think about pricing your vertical
- 00:04:21SAS so where do you want to start yeah
- 00:04:25so let's I let's start on um how to dive
- 00:04:28in and actually start one of these
- 00:04:30things and so I think it's much more of
- 00:04:32a I think vertical SAS is much more of a
- 00:04:33science than an art I think people
- 00:04:36believe starting a software business is
- 00:04:39this artistic thing where you gotta come
- 00:04:42up with some crazy big idea and you know
- 00:04:44you got to hold it close to the vest and
- 00:04:46you can't tell anybody about it and you
- 00:04:47got to raise millions and millions of
- 00:04:49dollars I think it's a very like
- 00:04:51mathematical scientific approach in
- 00:04:53vertical software and so I'd love to
- 00:04:55just walk everybody kind of through how
- 00:04:57I how I think about that as a place to
- 00:05:00start and that'll lead well into wedge
- 00:05:02products and we can give examples of
- 00:05:05wedge products and you know how to
- 00:05:08actually get in the door at some of
- 00:05:09these businesses how does that sound
- 00:05:11that sounds perfect let's rip it let's
- 00:05:13rip it I like it jam session baby all
- 00:05:16right I'm gonna um I'm gonna share my
- 00:05:18screen I'll talk through this for those
- 00:05:20that are listening but I've got a bunch
- 00:05:22of stuff kind of outlined in my my quote
- 00:05:25unquote Bible here so let me let me pull
- 00:05:28this up all right so so the first thing
- 00:05:31that you're going to see here is uh
- 00:05:34you're and again back to science so I'm
- 00:05:37a big believer in picking a industry and
- 00:05:40not a and not an idea so you don't come
- 00:05:43up with an idea at all that's not the
- 00:05:45first step that's not even the 10th step
- 00:05:48so you have to focus on an
- 00:05:51industry um and there's certain
- 00:05:53characteristics that make an industry a
- 00:05:55really good opportunity for vertical SAS
- 00:05:58right so I have this check list we'll go
- 00:06:00through all the checklists but the first
- 00:06:02thing I like honing in on is like all
- 00:06:03right how do I know what industries are
- 00:06:06out there well there's a bunch of great
- 00:06:07resources I've mapped out over a
- 00:06:09thousand
- 00:06:10Industries um and I map them out on a
- 00:06:13couple key things the first one is how
- 00:06:15how big they are right so what do the
- 00:06:17companies in those end Industries
- 00:06:18actually do from a revenue standpoint so
- 00:06:20you can see the biggest industry in the
- 00:06:22US right now is is General Medical and
- 00:06:25Surgical Hospitals they're doing nearly
- 00:06:26a trillion in revenue and there's 200
- 00:06:29companies
- 00:06:30so the first thing I like to look at is
- 00:06:32revenue but the second thing that's
- 00:06:35that's very important is how many
- 00:06:36companies are in that industry and why
- 00:06:39this is important well you can see in in
- 00:06:42Surgical Hospitals there's only 2500
- 00:06:45companies in that space so that means
- 00:06:48it's incredibly enterpris driven right
- 00:06:52selling into the Enterprise is
- 00:06:54incredibly difficult you have to have a
- 00:06:56ton of of of product in massive features
- 00:06:59sets to actually get something in there
- 00:07:01so I hate topheavy Industries especially
- 00:07:04if you're a bootstrapper and you're not
- 00:07:06trying to raise you know tens of tens of
- 00:07:08millions or hundreds of millions of
- 00:07:09dollars so the segmentation in how the
- 00:07:12industry is actually broken down is is
- 00:07:14hyper hyper critical so the best markets
- 00:07:17to look for are you know bigger bigger
- 00:07:21the better right especially if you're
- 00:07:23doing a venture kind of opportunity if
- 00:07:25you're doing bootstrap it doesn't need
- 00:07:26to be that big but um a solid amount of
- 00:07:29operation ating revenue and then the
- 00:07:31better the segmentation uh so what do I
- 00:07:35mean by that well there's a healthy mix
- 00:07:36of small businesses right businesses
- 00:07:39that do a couple million dollars a year
- 00:07:40in Revenue there's a healthy
- 00:07:42distribution of mid-market businesses
- 00:07:44you know maybe those are companies doing
- 00:07:4510 to you know 50 to hundred million
- 00:07:48doar a year in revenue and then business
- 00:07:50Enterprise so over a hundred million
- 00:07:53do why that's important is because as a
- 00:07:56software company it's so much easier to
- 00:07:58get into MBS they require less you can
- 00:08:01get in with a smaller feature set or
- 00:08:03maybe even one feature and then you can
- 00:08:07add to the capability kind of grow up a
- 00:08:09little bit you know uh take the punches
- 00:08:13and and develop kind of broader feature
- 00:08:14sets that can then go serve a mid-market
- 00:08:16and then an Enterprise so the first two
- 00:08:18things I have to look for when I'm I'm
- 00:08:20thinking about this is again not an idea
- 00:08:23we haven't even talked about an idea yet
- 00:08:25right it's how big is it and what's the
- 00:08:27particular segmentation
- 00:08:30shh don't tell anyone but I've got 30
- 00:08:33plus startup ideas that could make you
- 00:08:35millions and I'm giving them away for
- 00:08:39free these aren't just random guesses
- 00:08:42they're validated Concepts from
- 00:08:45entrepreneurs who built hundred million
- 00:08:48plus businesses I've compiled them into
- 00:08:51one simple
- 00:08:53database compiled from hundreds of
- 00:08:56conversations I've had on my podcast but
- 00:09:00the main thing is most of these ideas
- 00:09:02don't need a single investor some cost
- 00:09:06nothing to start I'm pretty much handing
- 00:09:09you a cheat sheet the idea bank is your
- 00:09:11startup
- 00:09:12shortcut just click below to get
- 00:09:16access your next cash flowing business
- 00:09:19is waiting for you questions there does
- 00:09:21that make sense yeah go back to that for
- 00:09:23a second when you when you scroll on
- 00:09:25this list what is one or two industries
- 00:09:29that you're like whoa this there's
- 00:09:31something here and I need to dig in and
- 00:09:33why yeah so I've broken these down um
- 00:09:38actually into like individual scorecards
- 00:09:40so there's a couple that I really like
- 00:09:42here so the first one that I love that I
- 00:09:46think is dying for a vertical SAS
- 00:09:48business is machine
- 00:09:50shops so um why is machine shops
- 00:09:54interesting well going back to that list
- 00:09:58it's 26 2 billion or 240 billion in
- 00:10:01Revenue there's 22,000 of them and it's
- 00:10:06beautifully segmented right so the
- 00:10:08higher this number is the better um out
- 00:10:11of this is basically a score so I'm
- 00:10:13taking all thousand Industries and you
- 00:10:15know this is up at the top 70
- 00:10:17763 so if I actually look at machine
- 00:10:21shops it checks a ton of my boxes
- 00:10:24because it's highly fragmented there's a
- 00:10:26healthy amount of small businesses to go
- 00:10:28after midm markets to go after after in
- 00:10:29a few Enterprise and the average machine
- 00:10:32shop is doing 2 million a year in
- 00:10:34Revenue right there's 17,000 of them uh
- 00:10:39so this looks like a perfect place uh to
- 00:10:42build a vertical SAS company right now
- 00:10:44it's got a beautiful Market size
- 00:10:45beautiful segmentation and then I have a
- 00:10:48couple on the list here that kind of
- 00:10:50things I look at after that initial
- 00:10:51piece that we'll go into and what do you
- 00:10:53say to people who are like wow he's
- 00:10:56right there is an opportunity in machine
- 00:10:58shops but I live in Tribeca and I've
- 00:11:02never even visited a machine shop in my
- 00:11:04entire life I don't know anything about
- 00:11:05it is there still an opportunity for
- 00:11:07people yeah so look I didn't know
- 00:11:09anything about trade schools um I went
- 00:11:12to traditional education like I had
- 00:11:14family that went through the trade
- 00:11:15school route but I you know I lived in
- 00:11:18California I was like a tech guy right I
- 00:11:20started it bit my business in college
- 00:11:23and you know obviously if you have the
- 00:11:25domain expertise and you spent a bunch
- 00:11:27of time in machine shops right you're
- 00:11:29going to be uh a step ahead of someone
- 00:11:32who hasn't but and there's a correlation
- 00:11:35with successful outcomes and actually
- 00:11:37actually having the industry expertise
- 00:11:39but it's not a requisite at all so you
- 00:11:42know we've built one of the biggest
- 00:11:43vertical SAS businesses in the country
- 00:11:45for trade schools and it's I didn't know
- 00:11:47anything about trade schools until I
- 00:11:49started a decade ago so there's hope
- 00:11:52there's hope for you listen okay cool I
- 00:11:55mean look I think it takes again it's
- 00:11:57back to more of this is science versus
- 00:11:58art right so you have to go and you have
- 00:12:02to learn everything about machine shops
- 00:12:04as you possibly can um and there's
- 00:12:07opportunity in boring right and I don't
- 00:12:09look at vertical software as boring
- 00:12:12because I like I think it's incredible
- 00:12:14problem set it's it's you know it's a
- 00:12:17puzzle that you got to put together and
- 00:12:20the way that I try to learn about
- 00:12:21machine shops and this I'm sharing now
- 00:12:24on my screen um something from toast S1
- 00:12:28so toast is a publicly traded vertical
- 00:12:31SAS business a lot of people know about
- 00:12:33it they do restaurant
- 00:12:35software right and what they did in
- 00:12:38their S1 is they actually visualized a
- 00:12:41restaurant in every aspect of its
- 00:12:43operations end to end and so this is a
- 00:12:46very important part in determining if
- 00:12:48there's an opportunity in machine shops
- 00:12:50beyond the few characteristics that I
- 00:12:52talked about right so you have to map
- 00:12:55out the entire customer journey and the
- 00:12:57entire operations
- 00:12:59uh of the businesses within the industry
- 00:13:02that you're you're going to serve so in
- 00:13:05toast S1 they literally have
- 00:13:07visualization of every aspect of the
- 00:13:09restaurant the back office the kitchen
- 00:13:12the bank the delivery piece right uh the
- 00:13:16actual restaurant itself the bar um you
- 00:13:20know people at home that are trying to
- 00:13:22find out about the restaurants with
- 00:13:23websites and marketing and so you have
- 00:13:25to really understand machine shops even
- 00:13:28if you're in Tribeca
- 00:13:30um and I did this at corsky too so
- 00:13:31here's my example for trade schools like
- 00:13:33we have we understand all right the
- 00:13:35first piece of a trade school is
- 00:13:37admissions right it's finding students
- 00:13:39to enroll them the second piece is
- 00:13:41actually training them well how does
- 00:13:44that look it's not actually a classroom
- 00:13:45setting like they're training them in a
- 00:13:47garage right and they're training them
- 00:13:49with a a real car uh for an automotive
- 00:13:53example and then you have all these
- 00:13:55other bits and pieces I don't have to go
- 00:13:56into all of them the IT team this know
- 00:13:59student services the compliance and
- 00:14:00Regulatory piece the placement group is
- 00:14:02actually responsible for getting folks
- 00:14:03in there and as you actually visualize
- 00:14:06the end to end operations of the
- 00:14:08businesses within the industry this is
- 00:14:11how you start to actually identify is
- 00:14:13there where is the software opportunity
- 00:14:15and how big is that software
- 00:14:17opportunity i' I've never thought about
- 00:14:19it like this and it makes so much it's
- 00:14:21so much sense because I always think
- 00:14:22about it from the software perspective
- 00:14:25so there was a famous blog post called
- 00:14:27the unb unbundling of Craigslist a guy
- 00:14:29named Andrew Parker wrote it where he
- 00:14:32visualized Craigslist and all the
- 00:14:34different pieces of it and how each part
- 00:14:36was getting unbundled into you know I
- 00:14:39guess vertical software so for example
- 00:14:41you know there were dating you know
- 00:14:43people use Craigslist for dating then
- 00:14:45dating apps came out people use
- 00:14:47Craigslist for uh short-term rentals
- 00:14:50Airbnb came out and there's you know
- 00:14:51better versions of it and I've actually
- 00:14:53written a post called the unbundling of
- 00:14:55Reddit which is kind of the same idea
- 00:14:58different subreddits different you know
- 00:15:00vertical software but this is kind of
- 00:15:03taking
- 00:15:04it and flipping on its head it's saying
- 00:15:07these are industries that have a huge
- 00:15:10physical component to it visualize it
- 00:15:14and then thinking about okay where does
- 00:15:16software play a role in making this way
- 00:15:19more
- 00:15:20efficient yeah no totally and I you know
- 00:15:23it doesn't necessarily need to have a
- 00:15:24huge physical component to it but you
- 00:15:26have to map out and visualize the endend
- 00:15:28operations of any industry that you're
- 00:15:30intrigued about you want to go after I
- 00:15:32mean that's the nature of of vertical
- 00:15:34software so it's there's a you know I
- 00:15:37have over a thousand Industries in here
- 00:15:39right
- 00:15:40pharmacies uh restaurants
- 00:15:43Banks
- 00:15:44chiropractors gas stations you know uh
- 00:15:49IT services right home Home Centers Home
- 00:15:53Health Care is a really interesting one
- 00:15:54furniture stores is a really interesting
- 00:15:56one
- 00:15:57churches um the there's so many
- 00:15:59Industries I have a thousand the Better
- 00:16:02Business Bureau has over
- 00:16:045,000 um and so it's the science of and
- 00:16:08we're we haven't even scratched the
- 00:16:09surface yet we're just getting started
- 00:16:10which I love but it's how big is it
- 00:16:12what's the segmentation and then let's
- 00:16:15actually map out and understand kind of
- 00:16:17the End Business
- 00:16:19operations um and what that looks like
- 00:16:21from A to Z all right let's keep going
- 00:16:25hit that
- 00:16:26scorecard so there's a couple other
- 00:16:28things that I like to do um beyond that
- 00:16:32piece I'll I'll jump back to the the
- 00:16:33scorecard here so the the first piece
- 00:16:36is um outside of now that I've mapped
- 00:16:41out that
- 00:16:42particular uh you know end to end
- 00:16:44operation something that's really
- 00:16:46important to do is get your hands on as
- 00:16:48many pnls as possible so you want to
- 00:16:52look at as many pnls as you can from as
- 00:16:55many businesses in set industry as
- 00:16:58possible so an easy place to start is
- 00:17:01looking at like publicly traded
- 00:17:02companies within that space and looking
- 00:17:05at their pnls um another hack that I
- 00:17:08love is I talk to as many Bankers within
- 00:17:10that industry as possible um Bankers are
- 00:17:13an incredible Source uh because they buy
- 00:17:16and sell companies all day and they
- 00:17:17typically are industry focused and so
- 00:17:20you when you get your hands on a bunch
- 00:17:22of pnls you actually start to understand
- 00:17:24where are these companies spending
- 00:17:26money um and so like one of my core
- 00:17:31beliefs in software is you have to build
- 00:17:34software that either increases
- 00:17:36Revenue decrease costs or uh prevents
- 00:17:41customer turn and then depending on the
- 00:17:44industry a fourth one would be maintains
- 00:17:46compliance so some Industries highly
- 00:17:49regulated that becomes like a need to
- 00:17:50have and not a nice to have some you
- 00:17:52know Industries don't care about it but
- 00:17:53every single business in every single
- 00:17:56industry the CEO is trying to to and the
- 00:17:59owner is trying to increase Revenue
- 00:18:02decrease costs prevent as much customer
- 00:18:04you know churn as possible and
- 00:18:08so I want to understand when I look at
- 00:18:10those pnls like where is the money going
- 00:18:14um how much of it is being spent on
- 00:18:15people that could be automated with
- 00:18:17software right and in what specific
- 00:18:19functions how much of it is being spent
- 00:18:22on software all right what software are
- 00:18:25they spending money on and how much are
- 00:18:26they spending on it and what is it
- 00:18:28actually delivering or doing for them um
- 00:18:31it's one thing what what they're saying
- 00:18:33it's doing it's another what it's
- 00:18:34actually doing right um but a p&l will
- 00:18:37tell you a lot and you can start to
- 00:18:39really understand where existing
- 00:18:41expenses are going and how to create
- 00:18:43solutions that um that support you know
- 00:18:48the challenging pieces on that p&l makes
- 00:18:52sense follow the money that's the that's
- 00:18:54the follow the money step yep yep
- 00:18:57absolutely
- 00:18:59so outside of the following the money
- 00:19:00the other thing I like to do is I I like
- 00:19:02to spend a lot of time looking at um the
- 00:19:07competition and what when I say
- 00:19:09competition we don't even know yet what
- 00:19:10we're building right we've talked about
- 00:19:12a few steps here but we still don't even
- 00:19:14know what we're building we're not
- 00:19:16supposed to even be idea focused right
- 00:19:18it's science not art so the next thing I
- 00:19:21like to do is say okay what are what are
- 00:19:24the existing software Solutions looking
- 00:19:27like in this market there's typically a
- 00:19:29couple things that happen when you go
- 00:19:32deep dive on one industry there's either
- 00:19:35massive like Legacy providers that are
- 00:19:37trying to do and and and probably are
- 00:19:40doing pretty much everything A to Z
- 00:19:43right so if I go back to like the trade
- 00:19:45school example there's probably like an
- 00:19:47Erp that's 30 years old that's doing all
- 00:19:49of this right um so that that will come
- 00:19:54up in some examples another thing when
- 00:19:56you're kind of studying the software
- 00:19:57competition you'll see is
- 00:19:59you know is they're they're kind of
- 00:20:01pulling together a bunch of horizontal
- 00:20:03software Solutions right so non-industry
- 00:20:05specific software so they're pulling
- 00:20:08together you know a CRM that's built for
- 00:20:12any type of business they're pulling
- 00:20:14together a um uh you know a source of
- 00:20:17Truth or source of record or Erp that's
- 00:20:20built for any type of business um
- 00:20:22they're stitching together you know
- 00:20:25slack and and Gmail or Zoho or or
- 00:20:29something uh and that's I like those
- 00:20:32opportunities because it's super
- 00:20:33fragmented and and they're dying for an
- 00:20:35all-in-one you typically see one or the
- 00:20:37other uh when you dig into these
- 00:20:39industries the third thing you see and I
- 00:20:40promise you and people fight me on this
- 00:20:42but I promise you you see paper
- 00:20:46processes still and I it's 2024 I know
- 00:20:48you're going to be like Luke you're
- 00:20:50you're out of your mind I don't believe
- 00:20:51you um we still see at trade schools a
- 00:20:54bunch of paper processes in some of
- 00:20:55these indust areas but when you look at
- 00:20:59competition it's important not to just
- 00:21:01search like trade school software right
- 00:21:04like you have to look after you map out
- 00:21:06how these businesses operate a toz you
- 00:21:09have to look at each of these buckets
- 00:21:10and understand like what are they
- 00:21:13actually doing in each of these key
- 00:21:15areas right um and that's where you
- 00:21:18start to see interesting things coming
- 00:21:21because you'll say oh my gosh they're
- 00:21:23doing all their academics portion on
- 00:21:24paper right or they're doing all their
- 00:21:26placement stuff with horizontal
- 00:21:29Solutions um and this is right for a
- 00:21:31vertical component or all their
- 00:21:33compliance is like outsourced right to
- 00:21:36some Consulting shop um this is how you
- 00:21:39actually identify and uncover
- 00:21:41opportunities it's not Google searching
- 00:21:44like restaurant software does that make
- 00:21:47sense it does I'm just
- 00:21:49wondering if I'm let's just say I'm
- 00:21:52building in the trade school space and I
- 00:21:55want to map out and I want to figure out
- 00:21:57who the competition is
- 00:21:59is you know is there a way that Ai and
- 00:22:02could kind of do some of that heavy
- 00:22:04lifting have you tried that yet quick ad
- 00:22:07break let me tell you about a business I
- 00:22:09invested in it's called boring
- 00:22:11marketing.com so a few years ago I met
- 00:22:14this group of people that were some of
- 00:22:17the best SEO experts in the world they
- 00:22:20were behind getting some of the biggest
- 00:22:22companies found on Google and the secret
- 00:22:25sauce is they've got a set of technology
- 00:22:28and AI I that could help you outrank
- 00:22:31your competition so for my own
- 00:22:33businesses I wanted that I didn't want
- 00:22:35to have to rely on Mark Zuckerberg I
- 00:22:37didn't want to depend on ads to drive
- 00:22:39customers to my businesses I wanted to
- 00:22:42rank high in Google that's why I like
- 00:22:44SEO and that's why I use boring
- 00:22:46marketing.com and that's why I invested
- 00:22:49in it they're so confident in their
- 00:22:50approach that they offer a 30-day Sprint
- 00:22:52with 100% money back guarantee who does
- 00:22:56that nowadays so check it out highly
- 00:22:58recommend boring marketing.com yeah you
- 00:23:00know I I like um I like AI for uh the
- 00:23:05search component you know like we'll use
- 00:23:08we'll use chat GPT to just try to do a
- 00:23:10lot of the desk research piece of it but
- 00:23:13my view of AI today is that a lot of
- 00:23:18this information we're talking about
- 00:23:20it's more like research reports and
- 00:23:22analyst reports and so AI would be great
- 00:23:25for like the revenue size of the market
- 00:23:27the segmentation of the market right
- 00:23:30more of these higher level pieces that a
- 00:23:32research company would put out I think
- 00:23:36AI isn't going to do a great job yet on
- 00:23:38like what is every single step of the
- 00:23:40workflow for a you know a bank Let's uh
- 00:23:46let's try it out just for fun let's try
- 00:23:48it let's try it let's see what it looks
- 00:23:49like okay I'm gonna I'm gonna share my
- 00:23:52screen real quick okay so what what do
- 00:23:55you think I should prompt
- 00:23:57Cloe uh maybe in your space um what do
- 00:24:00you think I should ask let's do um let's
- 00:24:03why don't we try the Machine Shop
- 00:24:05example since let's do it we're gon
- 00:24:07shops yeah so first question I'd ask it
- 00:24:10is like tell me about the market size
- 00:24:13and the you know in the United States
- 00:24:15for machine
- 00:24:17shops um for machine shops in the
- 00:24:22USA and I'll give you like 15 questions
- 00:24:24to ask it we'll see how it does so that
- 00:24:27this this is perfect right this is the
- 00:24:29for this is what we had 40 billion
- 00:24:32annually 25,000 machine shops employees
- 00:24:35300,000 people growing one to
- 00:24:38three% uh industry is largely fragmented
- 00:24:41I actually this is amazing I love
- 00:24:43it uh with many small mediumsized
- 00:24:46businesses how are there also a few
- 00:24:48larger players that are con with uh some
- 00:24:51consolidation
- 00:24:52trends no real geographic
- 00:24:55distribution okay so that's beautiful so
- 00:24:57that's a perfect place to start right so
- 00:24:59next thing I would go into is um let's
- 00:25:02pull up the scorecard uh walk me
- 00:25:06through uh you know what a machine
- 00:25:10Shop's operation looks like end to end
- 00:25:13walk me through what a machine shop
- 00:25:15operation would look like n to
- 00:25:19n oh man I love it this is so great
- 00:25:23Chang the world
- 00:25:26crazy I actually didn't expect it to be
- 00:25:29this good to be to be
- 00:25:31frank it's it's good so what what we're
- 00:25:34seeing if you're listening to is they
- 00:25:37have basically steps one through 14 with
- 00:25:40one being if you scroll up what was one
- 00:25:42again it was uh requesting the quote
- 00:25:46Yeah so customer inquiry and quote order
- 00:25:48processing design and programming
- 00:25:50material prep setup Machining quality
- 00:25:53control inspection documentation package
- 00:25:57and shipping
- 00:25:59uh invoice and followup maintenance and
- 00:26:01cleanup so this is beautiful so the next
- 00:26:04thing I would ask it is like tell me uh
- 00:26:07what software Solutions
- 00:26:10are you know prevalent in the Machine
- 00:26:13Shop
- 00:26:15industry and can you tie those back to
- 00:26:18you know the end to- end
- 00:26:20process wow do we need to include do we
- 00:26:23need to qualify at this point like do
- 00:26:25they need to be doing a million in
- 00:26:26revenue or is that just complicating it
- 00:26:28it or what do you
- 00:26:30think um yeah maybe you just say like uh
- 00:26:34well you're saying what software
- 00:26:35Solutions are prevalent right so is that
- 00:26:37you think be more clear yeah let's let's
- 00:26:39let it
- 00:26:40rip because you know you could do you
- 00:26:44can also say like in this
- 00:26:47list and you know how many of these how
- 00:26:51how many of these softwares are like 20
- 00:26:53or 15 years or
- 00:26:55older I love that yeah I love that
- 00:26:59so this is great so it's telling us they
- 00:27:01use crms
- 00:27:03erps uh design like CAD software right
- 00:27:07design
- 00:27:08software um manufacturing software
- 00:27:11machine monitoring software quality
- 00:27:13assurance and management shopware
- 00:27:14Inventory management project management
- 00:27:17scheduling and it's giving us a couple
- 00:27:19in each of these yeah so why don't you
- 00:27:20ask you that like how many of these are
- 00:27:21less than five years old I'm going to
- 00:27:24say
- 00:27:26list all the
- 00:27:28softwares here that are isn't it older
- 00:27:32than five years or older than 10 years
- 00:27:33because that's isn't aren't those the
- 00:27:34ones that you want to
- 00:27:36disrupt yeah so there's there's two
- 00:27:38areas one is is Legacy pieces right um
- 00:27:41yeah the other the other angle is going
- 00:27:44to be areas where uh that are still on
- 00:27:48paper that haven't actually been
- 00:27:50digitized yet yeah that's number two and
- 00:27:53then number three is where where they're
- 00:27:56where are they stringing together Point
- 00:27:57solutions for
- 00:27:58right so those things you're probably
- 00:27:59not going to get out of
- 00:28:00AI um we should try why not I mean we're
- 00:28:04not let's just try it let's just say
- 00:28:07let's just use it like a real person so
- 00:28:08we're gonna
- 00:28:09say I'm trying to come up with a
- 00:28:14vertical sass with my friend
- 00:28:20Luke um and we actually for machine jobs
- 00:28:26my friend Luke and we we have a
- 00:28:30framework so the first is um what did
- 00:28:33you say
- 00:28:36Legacy yeah so first is what areas of
- 00:28:38machine shops are still being run on pen
- 00:28:41and paper what areas of machine shops
- 00:28:44are still being run on pen and paper I'm
- 00:28:48going to say basically that says there
- 00:28:51is an opportunity for software okay
- 00:28:56second I so the other thing I like to
- 00:28:59look at is a like AI opportunity and
- 00:29:01payments opportunity so which which
- 00:29:04areas are
- 00:29:06um which areas are machine shops not
- 00:29:09leveraging
- 00:29:12AI so I always look at AI opportunity
- 00:29:14fintech
- 00:29:16opportunity I just wrot something on the
- 00:29:19payments piece that's so important um
- 00:29:22third I'd say is uh please identify uh
- 00:29:26areas where machine shops are are
- 00:29:28using a myriad of horizontal
- 00:29:32Solutions horizontal software
- 00:29:34Solutions this is an excellent approach
- 00:29:37identifying opportunities for vertical
- 00:29:38size whoa you know it's you know it's
- 00:29:41getting real when they do this this like
- 00:29:44this over here on the right where SS
- 00:29:48writing I love this so
- 00:29:52much so um for for people listening so
- 00:29:57on the right hand side there's an
- 00:29:58analysis machine shop software
- 00:30:00opportunities analysis area still using
- 00:30:02pen and paper literally just listed out
- 00:30:05job tracking and scheduling many smaller
- 00:30:07shop deals whiteboards and paper
- 00:30:09schedules tooling and inventory often
- 00:30:10tracked manual and log books machine
- 00:30:12maintenance log frequently kept in
- 00:30:14binder notebooks it's literally telling
- 00:30:16you where there's opportunity here for
- 00:30:19pen and
- 00:30:21paper what do you think of the pen and
- 00:30:23paper section
- 00:30:25reactions I think it's absolutely
- 00:30:27incredible
- 00:30:28and so my next step here would be to go
- 00:30:30and validate all of this right just show
- 00:30:33up at machine shops say I'll buy
- 00:30:34everybody I'll buy you guys lunch today
- 00:30:36I know I probably look like a crazy
- 00:30:38person but I'll buy you guys lunch today
- 00:30:39if you just let me shadow the operation
- 00:30:41for today go validate it that does that
- 00:30:44work like people will do that yeah you'd
- 00:30:47be shocked yeah yeah cool especially in
- 00:30:50like blue collar industries like you
- 00:30:51just say hey I'm trying to build a
- 00:30:52software company for machine shops and
- 00:30:55you know I just want to make sure that
- 00:30:57uh you know I'm building the right
- 00:31:00thing you know can I buy you guys lunch
- 00:31:02just to let me kind of watch and see
- 00:31:04what
- 00:31:05happens perfect cool so pen and paper
- 00:31:10number two areas not leveraging AI
- 00:31:12predictive maintenance AI could
- 00:31:14anticipate machine failures before they
- 00:31:15occur optimize job scheduling AI could
- 00:31:18consider multiple factors to create
- 00:31:20efficient schedules automated quality
- 00:31:22control AI powered computer vision could
- 00:31:25enhance inspection process energy manag
- 00:31:27management AI could optimize machine
- 00:31:30uses to reduce energy consumption you
- 00:31:31get the idea here uh Luke what's your uh
- 00:31:35reaction to the areas not leveraging AI
- 00:31:38section I think um I think there's I
- 00:31:41would doubt that any of any aspect of
- 00:31:45machine shops today are probably
- 00:31:47utilizing AI especially in SMB and midm
- 00:31:50Market I would highly doubt it which is
- 00:31:52great so this is showing a ton of
- 00:31:54opportunities I bet you there's even
- 00:31:56more
- 00:31:58yeah and I and by the way there's
- 00:32:00probably an opportunity to just like
- 00:32:03design this using like vzer and you know
- 00:32:08just design a prototype or a framer
- 00:32:10website even and just show this to a
- 00:32:13machine shop owner and be like hey if I
- 00:32:15built this would this be of interest
- 00:32:16like getting their
- 00:32:18feedback cool and then section three
- 00:32:21areas using multiple horizontal solution
- 00:32:24project management often Cobin get
- 00:32:26together General purpose apps tools like
- 00:32:29Trello Asana spreadsheets CRM many use
- 00:32:32generic crms not tailored to machine
- 00:32:34shops accounting and invoicing General
- 00:32:36accounting software often lacks machine
- 00:32:38shop specific features etc etc Luke
- 00:32:42reaction I it's on the money it's on the
- 00:32:45money I think the so this is incredible
- 00:32:47so AI is is a incredibly helpful kind of
- 00:32:52assistant for anybody listening to go
- 00:32:53build a vertical SAS I think start out
- 00:32:56with those Frameworks around Market size
- 00:32:58segmentation right and then this can be
- 00:33:01a totally it's it's your own research
- 00:33:03assistant right I the only thing I'd say
- 00:33:06is do not there's no news in the
- 00:33:08building right so um make sure you go
- 00:33:13out and spend
- 00:33:15time validating and ensuring
- 00:33:18that what we're seeing online is is the
- 00:33:21reality in person 100% 100% I'm GNA ask
- 00:33:26it one last question question which I
- 00:33:28don't think it's going to I don't think
- 00:33:30it's going to work but I'm I'm getting
- 00:33:32greedy I'm going to
- 00:33:34say
- 00:33:35these are all really great ideas I
- 00:33:40honestly can't believe
- 00:33:42it my issue
- 00:33:45is I don't know if these
- 00:33:50are validated ideas I was thinking of
- 00:33:55going to machine shops to get their
- 00:34:00feedback
- 00:34:02um
- 00:34:04IRL but I hope you can save me a
- 00:34:09trip validate these ideas for me let's
- 00:34:12just see what happens I don't have High
- 00:34:14Hopes but I was
- 00:34:21nice okay so it's giving
- 00:34:23me
- 00:34:26some some idea does on how I can
- 00:34:29actually validate the
- 00:34:35ideas look it even wrote you a a machine
- 00:34:38shop SAS validation
- 00:34:41plan it's pretty
- 00:34:43cool this is insane it's so crazy yeah
- 00:34:48cool all
- 00:34:52right um I think the next thing that I I
- 00:34:56would do so so let's zoom out for a
- 00:34:59second right so we've found an
- 00:35:01interesting Market it meets like the
- 00:35:02size requirements it meets the
- 00:35:04segmentation requirements we've studied
- 00:35:06the endend
- 00:35:07operation we've
- 00:35:10um we basically have a couple different
- 00:35:13areas where we understand you know
- 00:35:15there's product opportunity software
- 00:35:16product
- 00:35:17opportunity um the next piece that I
- 00:35:20think is hypercritical is you have to
- 00:35:23really understand the go to market and
- 00:35:26be comfortable with to go to market
- 00:35:28before you go and invest a bunch of time
- 00:35:31here and so let me give you an example
- 00:35:33of that is I see Founders all the time
- 00:35:35they build these beautiful products they
- 00:35:37come up with Incredible things well the
- 00:35:39you can have the a great product but a
- 00:35:41great product without users is a shitty
- 00:35:43product right you know that better than
- 00:35:45anybody Greg um and so you have to be
- 00:35:50understanding of the distribution piece
- 00:35:51and so a way that I like to do that is I
- 00:35:53like to look at vertical SAS companies
- 00:35:56that have scaled in that particular
- 00:35:57space space and I study their go to
- 00:35:59market and I bet Claude or chat GPT
- 00:36:02would help here too which is like tell
- 00:36:04me you know one of the companies that
- 00:36:05came up there was Fishbowl right I
- 00:36:07believe it's inventory management for
- 00:36:08machine shops um but tell me about how
- 00:36:12you know they got their first 10
- 00:36:13customers firsts 100 customers firsts
- 00:36:15thousand customers I think one of the
- 00:36:17things that Founders need to be cautious
- 00:36:19of in vertical SAS is a is go toar
- 00:36:21market is really really difficult in a
- 00:36:24lot of these industries and what I mean
- 00:36:25by that is um a lot of them to date have
- 00:36:30required pretty heavy outside sales
- 00:36:32models so they're not your typical like
- 00:36:35product Le motion where I can you know
- 00:36:38drop a
- 00:36:39product uh on product hun or via email
- 00:36:43and and get users like a lot of these
- 00:36:45are kind of country Clubby you know sit
- 00:36:49down shake hands build relationships typ
- 00:36:52types of businesses and so if you don't
- 00:36:53want to do that go to market needs to be
- 00:36:56a very key piece of your scorecard and
- 00:36:59it needs to be a key piece of your
- 00:37:00scorecard especially if you're looking
- 00:37:02at doing a venture take over the world
- 00:37:04type of startup because VCS almost
- 00:37:09always like to invest in companies that
- 00:37:11have product Le or marketing Le customer
- 00:37:15acquisition because it's just faster
- 00:37:17right if you look at sales Le publicly
- 00:37:20traded companies all of their average
- 00:37:23contract values are
- 00:37:25massive like the only way to build build
- 00:37:27a really big company at least based on
- 00:37:29historical data like prove me wrong but
- 00:37:32the only way to build a really big
- 00:37:33company if you have a sales L motion is
- 00:37:35if you have like pretty substantial
- 00:37:37acvs uh and ACV being average contract
- 00:37:40value right so like um if you want to
- 00:37:44grow fast you want to lean you want to
- 00:37:46find Industries where you can acquire
- 00:37:48customers via product Le or marketing Le
- 00:37:51approaches how important
- 00:37:53is building media being on social
- 00:37:58like are are are the Machine Shop people
- 00:38:00of the world on on social like what's
- 00:38:02your what's your take you know look I
- 00:38:04don't know about machine shops um I
- 00:38:07think that's one of the key things on a
- 00:38:09scorecard to dig into and figure out I
- 00:38:11mean people listening to your your
- 00:38:13podcast like smart people right creative
- 00:38:15people ambitious people they're going to
- 00:38:17do it differently than everybody has
- 00:38:19done it before so it doesn't mean to do
- 00:38:21it how everybody's done it before it
- 00:38:23means to understand how they've done it
- 00:38:25before and so you can see what works and
- 00:38:27what hasn't worked doesn't mean you can
- 00:38:29you can add in your own flare and and
- 00:38:31make a few bets that you think can can
- 00:38:35uh result in Faster growth or you know
- 00:38:37better economics or whatever and so yeah
- 00:38:39I mean
- 00:38:40newsletter creating a machine shop
- 00:38:42newsletter like I'm sure those guys are
- 00:38:44on their email right yeah uh I bet you a
- 00:38:48lot of those companies aren't doing that
- 00:38:49well so it's all industry dependent and
- 00:38:54I bet you like if you ask me if you put
- 00:38:55me in a corner and you're like Greg how
- 00:38:58do I get the 1 million people who work
- 00:39:00in machine
- 00:39:02shops and onto like a newsletter what I
- 00:39:06would do is I would do like a daily
- 00:39:08funny Machine Shop Meme
- 00:39:11email
- 00:39:12where you just are like it's like inside
- 00:39:15jokes like you hire you hire someone who
- 00:39:17works in a machine shop in like De Moine
- 00:39:20Iowa and you're like hey like the dad
- 00:39:23joke of the day yeah pretty much yeah
- 00:39:26and then you have all these people
- 00:39:27Advocates and it's like oh by the way
- 00:39:29I'm like I sell this
- 00:39:31software and then you know you you start
- 00:39:33building up multiple pieces of software
- 00:39:35and before you know it you know the
- 00:39:37lifeblood of your of your uh software is
- 00:39:41this
- 00:39:42newsletter yeah so that that's why Greg
- 00:39:44makes the big bucks here because he
- 00:39:46comes up with the creative approaches I
- 00:39:48love I mean I love it I'm gonna do that
- 00:39:50for trade schools you should you
- 00:39:52honestly
- 00:39:53should uh Nob brainer Okay so go you
- 00:39:57know what else have you know where where
- 00:40:00we at on the
- 00:40:01scorecard so we've talked go to market
- 00:40:03was the the next one I think um kind of
- 00:40:07and I'm we're jumping around a little
- 00:40:09bit but I think that's okay so going
- 00:40:10back real quick to the product piece I
- 00:40:12think we we talked about opportunities
- 00:40:14and product I think it's probably good
- 00:40:16Greg talk a little bit about wedge
- 00:40:18products yes um
- 00:40:21so everybody has a different name for
- 00:40:24them I call them wedge products what a
- 00:40:25wedge product is is I Define it as it's
- 00:40:29your get in the door product so in
- 00:40:32vertical
- 00:40:33SAS if you found a good opportunity like
- 00:40:37the end all Beall is to be the One-Stop
- 00:40:39shop like the all-in-one solution the
- 00:40:41source of record the thing that they use
- 00:40:43for everything A to Z right but nobody
- 00:40:46starts there nobody ever starts there
- 00:40:49and so if you have if you're like I'm
- 00:40:50going to build the One-Stop shop for
- 00:40:52machine shops investors are going to
- 00:40:53look at you and be like well you're out
- 00:40:55of your mind because it's going to take
- 00:40:5710 years and you know hundreds of
- 00:40:59millions of dollars and and you're going
- 00:41:02to go and you know they do so many
- 00:41:04things you're going to go an inch deep
- 00:41:07and you're not going to do any of them
- 00:41:08well right so the typical approach and
- 00:41:12like the approach I use at my business
- 00:41:14was you find an area where there's it's
- 00:41:17on paper there's like really shitty
- 00:41:19competition but it's really important to
- 00:41:21the customer right and it's being done
- 00:41:23very poorly today and you're able to
- 00:41:27come up with something creative that
- 00:41:30gets is something that is easy to get in
- 00:41:32the door with they can implement it and
- 00:41:35deploy it quickly like it's not a
- 00:41:3712-month
- 00:41:38implementation um and it's your
- 00:41:40reputation prover like nine out of 10
- 00:41:45folks fail on their wedge product and
- 00:41:48it's because in my view it's because
- 00:41:50they don't like really think about it so
- 00:41:54let me give you an example of like a
- 00:41:55beautiful case study on Wedge products I
- 00:41:57write about these in in you know my
- 00:41:59vertical SAS newsletter but a beautiful
- 00:42:01case study on this is a company called
- 00:42:02roofer dcom rr.com they're building
- 00:42:06roofing uh they're software for roofing
- 00:42:08companies well roofing companies are the
- 00:42:11this beautifully massive Market huge mix
- 00:42:14of smbs midmarket Enterprise really
- 00:42:16bought like longtail lot of small
- 00:42:18businesses so beautiful thing it would
- 00:42:21have checked all of our boxes we came up
- 00:42:22with great what rofer did is they didn't
- 00:42:25say hey we're going to build allinone
- 00:42:26software for Roofing and they went to
- 00:42:27Market with that they said we're going
- 00:42:30to build a proposal
- 00:42:31tool right that enables um proposals are
- 00:42:36really important like you go on Google
- 00:42:38and you you want to get a proposal like
- 00:42:40well what was happening is you you call
- 00:42:43some number and some like random guy
- 00:42:44shows up at your house and is like hey
- 00:42:46I'm here to like give you the proposal
- 00:42:47on your roof and it's all awkward and
- 00:42:49he's got his clipboard and he tells you
- 00:42:50okay it's going to be $1,000 after he
- 00:42:52like climbs up on your roof um so what
- 00:42:56these guys did is they created a
- 00:42:57proposal tool that literally just used
- 00:42:59Google Maps to like look at the roof and
- 00:43:02it wasn't perfect right and but it
- 00:43:06enabled the roofing company to on the
- 00:43:07back end say hey um here's my pricing
- 00:43:11like here's what it should be this is
- 00:43:13what it should look like and then
- 00:43:15customer was able to get a real-time
- 00:43:17quote they could they could you know
- 00:43:19obviously with a star that says like
- 00:43:21subject to change when I when we get out
- 00:43:23there physically but should be in the
- 00:43:24realm they're able to book book it well
- 00:43:28when they book it roof.com got paid so
- 00:43:32it was a free wedge
- 00:43:34product right so they were able to they
- 00:43:36were like the first company I've ever
- 00:43:37heard of that acquired roofing companies
- 00:43:40via marketing like they did Instagram
- 00:43:43ads and Facebook ads and blah blah blah
- 00:43:45and they were able to acquire them um
- 00:43:49via digital which is like unheard of in
- 00:43:51Home Services Industries like it's
- 00:43:53always heavy sales Le like inside sales
- 00:43:56calling calling calling they got in with
- 00:43:59that product it spread like wildfire
- 00:44:01among roofing companies because it's
- 00:44:03like this free tool yeah I don't care if
- 00:44:04you you know take a percent of the
- 00:44:06booking because it's going to be on top
- 00:44:08of what I'm getting so no money out of
- 00:44:10my pocket you create this cool digital
- 00:44:12experience for the customer like I don't
- 00:44:14have to send somebody out until they pay
- 00:44:15me awesome so then they go and they
- 00:44:19launch a
- 00:44:20CRM right and so now they're moving down
- 00:44:23the entire lify life cycle of roofing
- 00:44:25companies I bet you next they're going
- 00:44:27to build like the Erp right like they'll
- 00:44:29they'll they'll get to the all-in-one
- 00:44:30they didn't start with the all-in-one
- 00:44:32but they built this wedge product that
- 00:44:34enabled them to it was a reputation
- 00:44:36prover it was easy to implement right
- 00:44:40and it was easy to get in the door it
- 00:44:41was a marketing ledge customer
- 00:44:42acquisition or marketing Le customer
- 00:44:44acquisition approach so you know what's
- 00:44:47easier Greg than acquiring uh um a net
- 00:44:51new
- 00:44:53customer acquiring an existing customer
- 00:44:57right so it's so much easier for me to
- 00:44:59sell something to somebody that already
- 00:45:00uses my product than it is for me to
- 00:45:02sell someone who's never used anything
- 00:45:03so they're like yeah those guys had a
- 00:45:05great proposal tool like let me look at
- 00:45:07their CRM maybe we we want to move off
- 00:45:10of ours and now I'm willing to pay like
- 00:45:11a SAS based kind of monthly fee for that
- 00:45:14CRM as opposed to this transaction kind
- 00:45:17of business model on the wedge product
- 00:45:19that was like a beautiful and I'm you
- 00:45:21know if you ever have the founders on
- 00:45:22I'm sure I got some of that wrong that's
- 00:45:23like what I've heard through the ether
- 00:45:26but that's like the perfect wedge into
- 00:45:30software uh you know
- 00:45:32CRM and I'm sure the next step for them
- 00:45:34is like Allin one I like it for a few
- 00:45:37reasons one it's follow the money
- 00:45:41because it's like a proposal you get it
- 00:45:44out there and then you close the
- 00:45:46business and then all of a sudden rofer
- 00:45:49is the
- 00:45:50hero um because they you know they
- 00:45:54helped close that business which then in
- 00:45:57you know number two increases the trust
- 00:46:01around the customer and and the business
- 00:46:04so I think if you're trying to create it
- 00:46:06sounds like if you're trying to create a
- 00:46:07wedge product think about how you could
- 00:46:10like what is the wedge product that
- 00:46:12could create the most amount of
- 00:46:14trust absolutely the other thing I'd add
- 00:46:17to it too that's really important in
- 00:46:19vertical SAS is if you can build a wedge
- 00:46:22product um before or after the
- 00:46:25transaction you can eventually own the
- 00:46:29transaction and so let's talk about that
- 00:46:31for a second like adding payments into
- 00:46:35vert your vertical s your vertical SAS
- 00:46:37solution is the way to like build
- 00:46:40massive massive companies in in vertical
- 00:46:43software and
- 00:46:44so every single Big Industry specific
- 00:46:47software company owns the
- 00:46:50transaction all right so let's unpack
- 00:46:52that a little bit let's say toast
- 00:46:54remember we've talked about Toast
- 00:46:55restaurant software right if they go out
- 00:46:57and they say hey investors we're going
- 00:46:59to build an all-in-one software for
- 00:47:01restaurants there's um I'm using rough
- 00:47:05numbers it's like gen generally accurate
- 00:47:08I think but there's like a million
- 00:47:09restaurants in the us and we're going to
- 00:47:12charge you know 10 bucks a
- 00:47:15month uh and so now you do the math on
- 00:47:18that what's a million times 10
- 00:47:21bucks not a lot it's 10 million all
- 00:47:24right uh so our our software Market size
- 00:47:27is 120 million right so like VC is going
- 00:47:30to look at that and be like that's not
- 00:47:32big enough at all if you're
- 00:47:33bootstrapping absolutely big enough
- 00:47:35right but now what happened with toast
- 00:47:38is they said wait we're gonna actually
- 00:47:41Implement payments and we're going to
- 00:47:43take a piece of every single transaction
- 00:47:45that flows through those restaurants
- 00:47:46well the those million restaurants do
- 00:47:48one trillion in revenue and so now our
- 00:47:51Market size went from 120 million to
- 00:47:53like you know whatever a couple
- 00:47:56percentage points one you know 1% 2%
- 00:47:59depending on their take rate probably a
- 00:48:01little lower than that of a trillion
- 00:48:03dollars right like very very big
- 00:48:06difference so it's it's one it's all
- 00:48:09these vsas companies can scale insanely
- 00:48:11quickly by adding payments and so if you
- 00:48:14can build a wedge product before or
- 00:48:16after the transaction and hopefully
- 00:48:17before and after the transaction you
- 00:48:19eventually can capture the transaction
- 00:48:21and I see like we implemented payments
- 00:48:24at corsky before they were using PayPal
- 00:48:27like trade schools were literally
- 00:48:28processing payments through PayPal so
- 00:48:32okay I already have all the students
- 00:48:34they use my app every single day they
- 00:48:35use it to clock in and clock out of
- 00:48:37class they use it to track their skills
- 00:48:38like it's obviously they would way
- 00:48:40rather the student pay through our
- 00:48:43solution where we already have all the
- 00:48:44accounts made we know their schedules
- 00:48:47you know we know everything about them
- 00:48:49versus I got to go create an account in
- 00:48:51PayPal and now I got to like export all
- 00:48:55the transaction records into like my
- 00:48:58Excel sheet and figure out who's late on
- 00:49:00their payment and who's you know who's
- 00:49:03not and how does that look on like a
- 00:49:05school by school or program by program
- 00:49:07and now like it's it's it's a it's an
- 00:49:10FID nightmare so vertical specific
- 00:49:12payments is like a beautiful beautiful
- 00:49:14opportunity and it's typically not a
- 00:49:16wedge it can be but if you can map into
- 00:49:19that you can build a really big business
- 00:49:21I like it we're running out of time but
- 00:49:24I I have to ask one one more piece to
- 00:49:26the
- 00:49:27scorecard uh because I know people are
- 00:49:29in the comment section are going to be
- 00:49:30like you got to ask this pricing how do
- 00:49:34you think of do you have a framework for
- 00:49:36thinking about how you price these
- 00:49:39things yeah so you know pricing I think
- 00:49:42is like the least thought about thing in
- 00:49:44software and which is crazy it should
- 00:49:47probably like be one of the most thought
- 00:49:49about things in
- 00:49:50software um my Approach is pretty pretty
- 00:49:56basic but I think it works so my
- 00:49:58Approach is I understand how much does
- 00:50:01the thing cost that I'm
- 00:50:02solving right and once I figure out how
- 00:50:06much the thing costs I shouldn't say
- 00:50:08cost how much are they paying for the
- 00:50:09thing that I'm solving today right um
- 00:50:13and then I can look at actually coming
- 00:50:15up with some sort of pricing model so
- 00:50:16let I'll give you a concrete example so
- 00:50:20we came up with a retention tool um we
- 00:50:23kept hearing from all of our end
- 00:50:24customers that like student retention
- 00:50:25was a problem like all their they had a
- 00:50:27bunch of students that were dropping out
- 00:50:29of you know their their Trucking you
- 00:50:32know school um and so we said okay we're
- 00:50:36going to build a tool that like analyzes
- 00:50:37all of their academic data and their
- 00:50:39attendance and and basically floats up a
- 00:50:42risk score that tells you which students
- 00:50:44are at risk in real time and then we're
- 00:50:46going to automatically text those
- 00:50:48students um who are like trending in the
- 00:50:51wrong direction and and try to motivate
- 00:50:53them via text you know with resources
- 00:50:55and ways to get back on track right so
- 00:50:58then we said okay well how much is a is
- 00:51:01tuition for a school well it's $20,000
- 00:51:04all right if we assume well what's the
- 00:51:06school's retention rate well right now
- 00:51:08it's like
- 00:51:0970% okay so what we found out was like
- 00:51:13they were losing millions of millions of
- 00:51:15dollars every year on this problem and
- 00:51:17so if if we able to build a solution
- 00:51:19that like saved five students right who
- 00:51:22were halfway through the program and
- 00:51:24they were each paying $20,000 to go this
- 00:51:26program like that was serious and so now
- 00:51:30I'm able to price my product way high
- 00:51:32because I say I can you know look we're
- 00:51:34forecasting that we're going to save you
- 00:51:35x amount of students that translates to
- 00:51:37Y and so this is what we're going to do
- 00:51:40for you and then this is how much our
- 00:51:41product costs over time I was able to
- 00:51:44like look at all the customers that use
- 00:51:45this and say hey our average lift is
- 00:51:483% based on your business and the inputs
- 00:51:50you gave me that equals to X dollar of
- 00:51:53Roi therefore I'm charging you less than
- 00:51:55the ROI like half of it which is this so
- 00:51:59I try to look at things like from first
- 00:52:02principles in that sense which is break
- 00:52:05down the money how much money am I
- 00:52:07making you and then could you give me a
- 00:52:09portion of that money basically is what
- 00:52:11you're saying so that it's anywhere what
- 00:52:13is it anywhere between 20 to
- 00:52:1650% yeah I I probably try to start at
- 00:52:1850% and then I like listen to the market
- 00:52:20feedback and I adjust either up or down
- 00:52:22based on that there you go I also only I
- 00:52:25only build products that increase
- 00:52:28Revenue decrease costs uh prevent
- 00:52:32customer turn or or uh or help with
- 00:52:35compliance like because those are the
- 00:52:36things that I can have clear Roi on if
- 00:52:38I'm not doing that like I'm not I'm not
- 00:52:40gonna be able to sell it it's not what
- 00:52:42people care sure Luke uh this has been a
- 00:52:45master class I'm about to like hack on a
- 00:52:48couple vertical SAS ideas this weekend
- 00:52:51or markets and ideas this weekend I
- 00:52:54appreciate you coming on where could
- 00:52:56people
- 00:52:57get to know you your writings learn more
- 00:53:00about vertical
- 00:53:01SAS yeah absolutely so I have a
- 00:53:03newsletter it's uh it's just luk aos.com
- 00:53:07um It's s o p i n oos is how you spelled
- 00:53:11my last name it's called the linear
- 00:53:13newsletter it's on substack I I
- 00:53:15basically it's a free newsletter we we
- 00:53:18uh we it's all about vertical SAS it's
- 00:53:20all I talk about it's all I write about
- 00:53:22um so you can go subscribe there and
- 00:53:24then I just dropped the vertical s Bible
- 00:53:27which is vertical SAS bible.com that's a
- 00:53:29paid resource um only reason it's a paid
- 00:53:33resource is because it's literally like
- 00:53:35the last 10 years of my writing
- 00:53:37distilled into a thousand pages and I
- 00:53:39have a thousand Industries in there and
- 00:53:42um it's it's a bunch of good like case
- 00:53:45studies and how-tos and Frameworks on
- 00:53:47how to go build one of these things so
- 00:53:49tot that's where you can find me and
- 00:53:50then on Twitter Twitter Luke sfinos and
- 00:53:52you don't want a 100,000 people you know
- 00:53:55competing in in vertical SAS like we're
- 00:53:57keeping it small this is uh you know we
- 00:54:00we're keeping it a little small I
- 00:54:02appreciate it thanks for coming on um
- 00:54:05and uh I'll see you around see you
- 00:54:07around Miami awesome Greg thanks for
- 00:54:09having me man appreciate you later
- 00:54:13[Music]
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