Luke Sophinos
speaker
126 appearances
1 recordings
1 series
first heard Sep 2024
last heard Sep 2024
Luke Sophinos’s voice in public audio — every appearance, attributed to the second.
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Awesome, Greg. Thanks for having me, man. Looking forward to it.
Yeah, let's do that. Let's start with why vertical SaaS. So I think my thesis on this is relatively simple and straightforward. And vertical SaaS isn't something that's new. If you look back all the way to when first people really started creating software, use cases were all tied to businesses. It was tied to how can we Better optimize, better, you know, create more efficiency, right?
Create cost savings, time savings, revenue lift, blah, blah, blah. But I think somewhere in the last kind of 10, 15 years, a lot of that got lost and we got into the...
sexy you know vc let's chase massive billion multi-billion dollar opportunities and go unicorn hunting and so what happened is you had a bunch of founders that moved away from industry-specific software well why because they're they're market constrained you're only going after one market
And, you know, for a VC, there's just not a lot of individual industries that can create these extraordinary outcomes that they need to see. And so all these founders started chasing really broad kind of startup concepts. And obviously you had huge winners in that, but you had a lot more, you know, grave sites.
So I've looked really, I spent the last decade building, you know, a vertical SaaS business in trade schools, which is probably one of the most like,
boring industries you can contemplate, but there's so much opportunity for still today in 2024 to not go build the shiny, sexy thing with limitless market size and hone in and focus on one industry, one type of business and build software tailored for them. and build really great businesses that are enduring strong retention.
You know, they don't necessarily have the growth rate that the VC guys want to see in most cases, but you can build great businesses in these settings. So I'm obviously bullish on it. I've dedicated my career to it and that's what I do.
Yeah, so let's start on... how to dive in and actually start one of these things. And so I think it's much more of a, I think vertical SaaS is much more of a science than an art.
I think people believe starting a software business is this artistic thing where you gotta come up with some crazy big idea and you gotta hold it close to the vest and you can't tell anybody about it and you gotta raise millions and millions of dollars. I think it's a very like mathematical scientific approach in vertical software.
And so I'd love to just walk everybody kind of through how I how I think about that as a place to start. And that'll lead well into wedge products. And we can give examples of wedge products and, you know, how to actually get in the door at some of these businesses. How does that sound? That sounds perfect. Let's rip it. Let's rip it. I like it. Jam session, baby. All right.
I'm going to share my screen. I'll talk through this for those that are listening, but I've got a bunch of stuff kind of outlined in my quote unquote Bible here. So let me pull this up. All right. So the first thing that you're going to see here is you're And again, back to science. So I'm a big believer in picking a industry and not an idea. So you don't come up with an idea at all.
That's not the first step. That's not even the 10th step. So you have to focus on an industry. And there's certain characteristics that make an industry a really good opportunity for vertical SaaS, right? So I have this checklist. We'll go through all the checklists. But the first thing I like honing in on is like, all right, How do I know what industries are out there?
Well, there's a bunch of great resources. I've mapped out over a thousand industries and I map them out on a couple of key things. The first one is how big they are, right? So what are the companies in those end industries actually do from a revenue standpoint? So you can see the biggest industry in the US right now is general medical and surgical hospitals.
They're doing nearly a trillion in revenue and there's 2,500 companies. So the first thing I like to look at is revenue. But the second thing that's very important is how many companies are in that industry and why this is important. Well, you can see in surgical hospitals, there's only 2,500 companies in that space. So that means it's incredibly enterprise driven, right?
Selling into the enterprise is incredibly difficult. You have to have a ton of product and massive feature sets to actually get something in there. So I hate top heavy industries, especially if you're a bootstrapper and you're not trying to raise tens of millions or hundreds of millions of dollars. So the segmentation and how the industry is actually broken down is hyper, hyper critical.
So the best markets to look for are, you know, bigger, bigger, the better. Right. Especially if you're doing a venture kind of opportunity, if you're doing bootstrap, it doesn't need to be that big, but a solid amount of operating revenue. And then the better the segmentation is. So what do I mean by that? Well, there's a healthy mix of small businesses, right?
Businesses that do a couple million dollars a year in revenue. There's a healthy distribution of mid-market businesses. You know, maybe those are companies doing 10 to, you know, 50 to 100 million dollars a year in revenue. And then business enterprise, so over 100 million dollars. Why that's important is because as a software company, it's so much easier to get into SMBs. They require less.
You can get in with a smaller feature set or maybe even one feature. And then you can add to that capability, kind of grow up a little bit, take the punches and develop kind of broader feature sets that can then go serve a mid-market and then an enterprise. So the first two things I have to look for when I'm thinking about this is, Again, not an idea.
We haven't even talked about an idea yet, right? It's how big is it and what's the particular segmentation?
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