Owning the "Negative Space" of Vertical Software

Instead of trying to be all things for all customers, become an essential function for a niche of customers and expand from there. Read: "Everything Starts Out Looking Like a Toy" #217

Sep 23, 2024

Hi, I’m Greg 👋! I write weekly product essays, including system “handshakes”, the expectations for workflow, and the jobs to be done for data. What is Data Operations? was the first post in the series.

This week’s toy: TidyBot is a robot that cleans up your living room. This goes a bit beyond the Roomba and other robot vacuums, adding the ability to pick things up and put them away. No word on whether it can separate dog toys from the other things that might be on the floor. Edition 217 of this newsletter is here - it’s September 23, 2024.

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The Big Idea

A short long-form essay about data things

⚙️ Owning the "Negative Space" of Vertical Software

I read Pete Flint’s The Verticalization of Everything this week. It’s a master class in strategy that lays out the case for building specific software for the needs of a specific business type. By zeroing in on software that fits a business really well, you create a moat against the software Platforms (with a capital P) that require significant customization to feel like they work for your business without an IT staff.

But what does this mean in practice? To hear what this sounds like, listen to CEO Daniel Lang of Mangomint discuss how you find, customize, and refine software for the needs of a business that most people don’t think of as a “tech-enabled” category when they think about building software (disclaimer: I work there).

As you listen to this podcast, ask yourself how much you hear about building software. There is much more here about building an operating system for a business type not traditionally served by software.

The goal: create a valuable customer experience not only for the business but also for the clients of that business. It’s a pretty interesting mental switch from a strategy of building an all-powerful platform that can serve any business (but needs to be customized to the needs of that business).

Finding Value in the Negative Space

Drawing teachers point at “negative space” – the space between objects – as a key value in understanding how to draw a scene and create proper perspective.

Finding the negative space in software means thinking about user behavior that is not explicitly defined. Make it easier for regular people to get their work done? They will want to use the software more often because it will become the regular thing they do.

You have a much better chance of finding the “negative space” in software when you start by mapping the regular workflow

Read Pete Flint’s essay above and you’ll realize a few things are happening that favor building verticalized software as a strategy:

The cost of building for a specific market is high for incumbents. Platform providers cannot build for small(er) markets and must focus on immediate multi-billion dollar opportunities
It’s hard to gain domain knowledge in each small market.
What makes sense in one market doesn’t automatically work everywhere
Improving share of software spend from a large number of underserved customers can be lucrative.
Start with key workflow and expand to adjacent functions

In this case, the “negative space” available is the market segment and expansion that occurs by designing an experience for an underserved set of customers.

Zeroing in on value

Pete Flint writes about focusing on the customer experience of vertical software as a differentiator. By using new technology, it’s now possible to create a hyper-specific feature that depends on the workflow of the business to deliver value.

For example, Mangomint has a feature to automate marketing tasks called Flows. Businesses using this software can easily send a booking reminder, advise on pre-appointment instructions, or send other kinds of reminders. This is a pre-built customer experience for the vertical of salons and spas.

If you were to ask Salesforce, Hubspot, or any other horizontal software provider whether they would build a feature to remind customers based on application data, they would say: “of course! You can build that yourself with our platform.”

As a salon owner or own another kind of business served by vertical software, it’s very unlikely you would do that. So building software specifically to serve the needs of those customers is a good way to gain a selling advantage.

Removing work vs creating new work

Vertical software works because you build a better customer experience by focusing on a few key workflows and making them great. Instead of building an infinite number of customizable features, it’s cheaper to build a hyper-specific feature that does fewer things well.

It doesn’t work for every product or every market. If you start with a wide product and try to make it amazing for a niche, you might succeed and end up with an unsustainable commercial structure.

But when it does work, it makes selling value so much easier. You end up removing work for every interaction and make the customer experience of using great vertical software magical.

What’s the takeaway? The wave of software is moving toward vertical software. By building well-crafted features that are customized to the workflow of that vertical, businesses that take this approach build a moat where they can expand into adjacent software spend.

Links for Reading and Sharing

These are links that caught my 👀

1/ Apple drives down costs - With the release of the new iPhone, it’s pretty interesting to see the progression of new phone costs and upgrade costs over time. Ben Thompson chronicles how this is changing, and charts the case for upgrading to last year’s model.

2/ Great tips for dashboard viz - one of the most important rules for communicating information: keep your visualizations understandable. Here are some excellent tips for improving your dashboards.

3/ Build quickly, with purpose - When you build software at a startup, it’s been likened to “rebuilding the engine on a plummeting airplane.” You need to be ruthless with your priority, build quickly, and bias for action. This is a great description of what to do next.

What to do next

Hit reply if you’ve got links to share, data stories, or want to say hello.

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The next big thing always starts out being dismissed as a “toy.” - Chris Dixon