The growth of AI has also seen an unprecedented rise in the vertical sector. The vertical sector is evolving by providing more specialized features and deeper workflows that are suitable for the growth of industries.

Boston-based restaurant management software company Toast raised public investment in 2021 at a valuation of over $30 billion. The company, which started as a restaurant application that customers could use, later started selling point-of-service solutions for restaurants. Thus, they have become a software company that offers multiple applications. From accepting payments from customers to providing a restaurant back office management system, it has become a prime example of vertical SaaS, solving a specific problem for restaurants. When services like cashiering, lending, payroll, etc. were added, Toast became a huge success. They now have $1.5 billion in annual revenue, 80 percent of which comes from these solutions.

What is Vertical SaaS?

Vertical SaaS is software built for specific business needs. These are tools specifically designed for businesses in sectors such as hospitals, fitness, and finance. While general software can be used across multiple industries, vertical SaaS is designed to meet the needs of specific industries. It helps businesses work more effectively with industry-focused features.

Layer Cake Strategy

Horizontal SaaS platforms like Zoho, Salesforce, or Slack provide generic tools that can be used across multiple industries. They focus on specific tasks and work across a variety of businesses. But vertical SaaS offers more features and deeper integrations, along with industry-specific workflows. This approach is called layer cake. They build more products and sell them in their core niche markets. Vertically focused startups can expand further through multi-product offerings and create additional revenue streams beyond their core offerings. They execute this strategy by adding payroll and employee management skills.

Whatfix

Whatfix is an example Whatfix is an example of a company with a multi-product strategy. Since starting in the insurance vertical in 2021 and expanding into pharma and life sciences in 2014, this digital adoption platform (DAP) has achieved significant success working with several large global customers. Today, Whatfix has grown its annual revenue by 4.5 times since its latest funding round. And it shows no signs of slowing down.

“In insurance, the company focuses on core applications such as claims processing, policy management, underwriting, agent portals, claims resolution, and underwriting error reduction. We work with many large global customers, including Baldwin Risk Partners, Brown & Brown Insurance, EIS Group Inc, Florida Peninsula Insurance, and Westfield Insurance,” says Vara Kumar, co-founder of Whatfix.

The company recently raised $125 million in a Series E funding round led by Warburg Pincus. The company is currently backing SoftBank Vision Fund 2 to scale its AI efforts and increase its capabilities in DAP areas. The company is also focusing on building better applications to develop AI agents that interact with human-like interfaces.

Growth of Indian unicorns

Indian unicorns Zenoti and Innovacer are also following a multi-product strategy. They develop products based on the needs of specific sectors.

According to Chirate Ventures, 80 percent of India's startup unicorns are also expanding their products to target global markets.

The third wave of AI

According to experts, startup companies are also growing at a rapid pace with the growth of artificial intelligence. They easily take over complex tasks that were previously done by humans, which helps reduce costs for customers in sales, service and finance, while increasing the company's revenue.

Opening up new markets

Verticals are where SaaS companies have the potential to grow very quickly, according to investment experts. Sectors like manufacturing, hospitals and healthcare are still not fully virtualized. There are many opportunities for industry-specific software solutions in such areas.

Software

Dry cleaning, laundry services, and manufacturing often do not use software due to the small number of customers. Because the cost is high. However, by reducing human effort using software, we can increase revenue from customers, improve sales and marketing activities, and expand small markets.

The importance of the sector is now increasing significantly with the advent of AI. Using this, businesses are working more efficiently and reducing costs