Why I Love Vertical Market Software Companies
Why Vertical Market Software Matters
A few years before I was ready to sell my company, Roper Technologies’ Head of M&A called me directly. He said something I never forgot:
“Whenever you’re ready to go, give us a call.”
At the time, I didn’t fully grasp why one of the world’s most sophisticated acquirers of vertical market software—industry-specific, mission-critical systems—would reach out so early. Roper is an S&P 500 and NASDAQ-100 company known for buying deeply specialized software businesses and holding them forever. Their philosophy centers on customer intimacy, workflow depth, and long-term defensibility.
He explained that Roper had heard very positive things about our business—specifically our reputation, our focus on a single vertical, and the closeness of our customer relationships.
Years later, Roper ultimately acquired the vertical software company I operated. That experience shaped how I think about specialization, defensibility, and why vertical market software companies compound in ways horizontal companies often do not.
This article explains why.
Horizontal vs. Vertical Software: The Real Distinction
What is vertical market software, and how is it different from horizontal software?
A helpful way to understand the distinction is through marketing tools. Products like HubSpot or Marketo solve a functional problem — helping marketing leaders execute campaigns — and they work across nearly every industry. That makes them horizontal systems, designed to support a job function regardless of the business itself.
Vertical market software solves problems that only exist inside a specific industry. Examples include construction project management, dental practice scheduling, restaurant point-of-sale systems, logistics and dispatch platforms, law firm billing, and professional-services staffing and performance software. These systems are built around industry-specific workflows, regulations, and operating realities.
Horizontal software solves broad functions, often organized by job description — marketing software, accounting software, sales management software. Vertical software goes deep into a single industry and models how that industry actually works. That depth is what makes it vertical market software.
TAM vs. SAM: Why Vertical Markets Are Smaller, More Accessible, and Far More Winnable
Horizontal software companies enjoy massive TAMs (Total Addressable Markets) because nearly every medium to large organization has a sales leader (Salesforce), a marketing leader (HubSpot or Marketo), and an HR leader (Workday). But capturing these horizontal markets requires enormous capital, global distribution, and highly generalized products capable of satisfying thousands of edge cases across dozens of industries. Even the very best horizontal vendors often top out at owning 30–40% of their market.
Vertical software is fundamentally different. The TAM is smaller, but the Serviceable Addressable Market (SAM)—the portion of the market you can realistically reach—is often most of the TAM itself. Specialization becomes the advantage. You’re solving painful, industry-specific workflows that horizontal systems cannot serve well, and information travels quickly inside a vertical.
This creates a dynamic where a vertical software company can realistically dominate its market in a way horizontal vendors rarely can. In many industries, once you become the system used by the top firms, the rest of the market follows naturally.
In a horizontal market, it takes massive capital to capture even a small percentage of TAM.
In a vertical market, specialization becomes the force multiplier—and you can become the market.
That was my experience. When I operated a vertical software company, we were fortunate enough to reach well over 90% of the legal market segment we served—something that would be nearly impossible in a horizontal category. That level of penetration wasn’t achieved through massive marketing spend; it emerged from domain expertise, credibility, customer intimacy, and vertical word-of-mouth.
Vertical TAM may be smaller, but the cost to win it is dramatically lower. You don’t need to boil the ocean—you need to serve one industry better than anyone else.
And once the top players adopt your solution, the viral loop begins. People move between firms and bring the software with them. New managers ask for the systems they already know. Job descriptions begin to require experience with it. In a vertical, once a few leaders adopt your product, the rest of the market pays attention—and often follows.
When you own a vertical, you don’t just win customers. You become part of the operating fabric of the industry.
Multi-Product Expansion: The Most Underrated Advantage in Vertical Software
At one point, I attempted to expand into new industries. Even with a strong product, the cost of entering a new vertical was extraordinarily high. Every industry has its own vocabulary, compliance rules, internal politics, and buyer psychology. Repeating our success elsewhere would have required significant venture capital or debt financing—something I deliberately chose not to take on.
What did work—elegantly and reliably—was expanding inside the vertical we already understood.
The economic buyer already trusted us for our beachhead product. The functional champions for additional modules already existed inside the firm. And customer acquisition cost dropped dramatically because expansion revenue didn’t require acquiring a new logo.
Here’s the core lesson I learned:
It is far easier to sell multiple products into one vertical than it is to sell one product into multiple verticals.
That focus allowed us to scale efficiently and sustainably. Over time, we built a suite of seven products within our vertical market. In fact, the seventh product we introduced was one of the six strategies I used to double the company prior to exiting—an outcome that would have been far more difficult, if not impossible, had we pursued horizontal expansion instead.
Why Horizontal Vendors Struggle to Enter Vertical Markets
Horizontal vendors consistently underestimate how difficult it is to succeed inside a vertical. Their products are designed for breadth, not depth. Their sales and marketing teams speak in general business terms rather than the language of the industry. Their implementations lack domain nuance, and their roadmaps prioritize broad applicability over vertical specificity.
Vertical buyers sense this disconnect immediately.
Even excellent horizontal platforms struggle with this mismatch. Vertical buyers want precision, industry accuracy, and a deep understanding of how their world actually operates. When that understanding isn’t there, no amount of scale or brand recognition can compensate.
Marketing in a Vertical: Speaking the Industry’s Language
Marketing inside a vertical is fundamentally different from selling a horizontal product. Each industry has its own vocabulary, conferences, associations, and cultural norms, and vertical buyers can immediately tell whether a vendor truly understands their world. Horizontal companies often arrive with generic messaging, and industry insiders recognize the disconnect instantly. In vertical markets, language, references, nuance, and credibility all matter. This is why specialized vendors consistently outperform generalists: they speak the industry’s language fluently.
Customer Intimacy: An Important Moat
In the vertical software company I operated, one philosophy guided us from the beginning: know the customer deeply—not just the workflows, but the people. I wanted our implementation and support teams to understand the personalities, communication styles, and operational priorities of the individuals they worked with. That level of familiarity built trust, accelerated adoption, and surfaced insights no horizontal vendor—with thousands of generalized customers—could replicate. Over time, customer intimacy became a structural moat. You can’t fake domain understanding, and it’s one of the qualities sophisticated acquirers like Roper Technologies look for—one of the reasons they ultimately became interested in our company.
The Complexity of Vertical Product: Where Features Become a Moat
Vertical software is rarely simple. These systems evolve into deeply nuanced operational platforms with hundreds of screens, dozens of role types, intricate permission models, and hundreds of specialized reports. This complexity reflects the reality of the industry, not poor design. Vertical software users are extremely picky—and that is a good thing. They want software that mirrors their exact workflows and operating assumptions. A great vertical product fits the customer like a hand in a glove. Once they experience that level of precision, switching becomes extraordinarily difficult. This is where complexity turns into defensibility.
Plugging Into the Vertical Ecosystem
Every vertical has its core systems—the operational backbone everything else depends on. In professional services firms, for example, two accounting platforms dominate the industry: Elite and Aderant. These are the true systems of record. By building deep integrations into both, we gained visibility into staffing, utilization, workflows, relationships, performance inputs, and the real operational patterns inside each firm. And the deeper the integration, the harder you are to remove. Over time, you begin to wrap around the system of record like an octopus, touching everything.
What Is a System of Record Anyway?
A System of Record (SOR) is the authoritative, indispensable source of truth for a company’s most critical operational data. If a business were forced to cut every system due to budget pressure, the system of record would be the last one unplugged. Vertical vendors don’t need to be the system of record—though ideally they are—but they do need to be inseparable from it. That tight coupling creates enormous stickiness and long-term defensibility.
Viral Distribution Inside a Vertical
One of the most powerful dynamics in vertical markets is how naturally a product can spread within the industry. People move between firms and bring the software they’re familiar with. New hires ask for the system they already know. Job descriptions begin to require experience with it. And teams introduce it organically to new colleagues. Adoption becomes less about selling and more about becoming part of how the industry works.
Pricing Power & Price Elasticity
Vertical market buyers are willing to pay more because their use cases are highly specific and their pain points are acute. An economic buyer in a vertical is not choosing between ten broadly similar tools; they are choosing between a generic solution that only partially fits and a vertical solution that matches their workflow exactly.
That distinction dramatically increases price elasticity. Vertical software buyers care far less about feature counts and far more about whether a system eliminates real operational bottlenecks—staffing errors, compliance failures, utilization inefficiency, lost billable hours, revenue leakage, and project breakdowns. These are not theoretical problems; they are expensive ones.
Champions inside the firm—HR, recruiting, talent development, and workflow owners—feel this pain directly. When a product meaningfully improves their day-to-day work, resistance to pricing drops. They are not buying “software”; they are buying relief from a high-friction workflow that no horizontal system can solve properly.
Because vertical products remove real financial and operational pain, buyers willingly pay for accuracy, specificity, and depth. And once a system becomes embedded in core processes, the cost of switching quickly exceeds the cost of staying—reinforcing pricing power over time. Those dynamics strongly influenced how I think about durable value creation, and they carried directly into how I approach investing at Upward Trajectory Fund.
AI and Vertical Software
AI is unquestionably displacing certain categories of software, and no one fully knows where things are going. My view is that in most industries, AI will sit on top of vertical market software rather than replace it. Vertical systems often contain enormous complexity — sometimes hundreds of database tables, hundreds of screens, and thousands of features — all built around the real-world workflows of a specific industry. It is far more practical for AI to become a layer that enhances these systems than to rebuild the entire vertical stack from scratch.
We don’t know which companies will ultimately stand up against AI, but vertical software has one advantage others do not: it is more than software. It is the relationships, trust, and long-term customer intimacy built inside a specific industry. That combination gives vertical market software a better chance of enduring in an AI-driven world.
Why I Will Always Love Vertical Market Software Companies
Vertical software is where specialization becomes an advantage, where customer intimacy compounds over time, and where complexity turns into defensibility. It’s where capital efficiency thrives, word-of-mouth accelerates adoption, multi-product expansion feels natural, and switching costs harden almost by themselves. Even in an AI-driven world, vertical software isn’t replaced — it is amplified. These companies quietly run the world’s industries and create durable, meaningful value not through hype, but through depth.
That is why I love vertical market software companies.
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