The Vertical Market Software Revolution

1st November 2023
Web capture 1 11 2023 114455 - The Vertical Market Software Revolution

Tom Matthews

Vertical market software (VMS) is revolutionising the way businesses operate and how they access industry-specific software solutions. This type of software as a service offers a number of benefits to both companies and investors.

Why is VMS so interesting?

VMS focuses on a specific end market or industry vertical and creates an ecosystem tailored to its unique needs.  VMS solutions offer specialized functionality and expertise, including a deep understanding of, and integration into, customers’ workflows.

VMS often offers an all-in-one solution, meaning customers don’t need to struggle with multiple disparate software systems. The result is a streamlined workflow and enhanced efficiency.  This can create extremely loyal, sticky customers for the VMS provider, with significant opportunities for upselling and cross-selling additional functionality or modules.

A customer-centric approach

VMS is purposely designed to drive value for customers.  VMS solutions are built from the ground up to serve the specific needs of a certain industry. This enables customers to access industry-specific tools tailored for their unique needs, making them more competitive in their markets.

VMS gets to the heart of what delivers value to the end customer.  In fact, many founders of VMS companies come from within the industries they’re building software solutions for, and therefore bring deep domain expertise.

Vertical software companies often get started by focusing on the small to medium sized (SME) customers within the industry vertical. This is because, most of the time, the end customer tends to be a local merchant (e.g. restaurant, hotel, retailer, etc.).

As these SME customers grow their operations, they often need to scale their software. With VMS, this can be done quickly because the application is built from the ground up with flexibility in mind.  Growing companies utilising a VMS solution can expand their operations without having to rework existing systems or find new ones capable of handling the increased workloads they need as they grow.

There are also larger verticals serviced by VMS companies. For example, at Pemba we had an investment in an auto tech VMS business, which provides solutions to clients including the major automotive OEMs (usually multi-national corporates) and large dealer groups.  VMS solutions work well even with large, enterprise-sized customers, as they can be customised according to a client’s exact requirements.  Because VMS solutions are built from the ground up, clients can choose which features they want to be included in their product and how those features will work for them. This helps even large, enterprise-sized customers create products optimised for their unique business models.

Success in VMS

VMS providers offer continuous improvement in performance for customers through the development of new features and regular updates / upgrades. The solutions are easy to use since they are designed with best practices in mind.

Success in VMS is not just about developing a robust, industry-specific product.  It’s about a deeper commitment to ensure customers achieve their desired business outcomes facilitated by the VMS solution.

The best VMS businesses invest in thorough onboarding processes, continuous customer education and exceptional support (all collectively referred to as customer success). These steps not only assist with very high customer and revenue retention but also create client advocates for the VMS product.

Access to rich datasets

The industry specific functionality of VMS provides access to deep and rich datasets.  VMS companies can access this rich industry-specific data to provide data analytics solutions to customers.  VMS therefore benefits from the opportunity to develop highly specific data analytics use-cases to add further value to customers.

A great example of how the use of data analytics by VMS solutions can lead to better customer outcomes is in the food and beverage industry, where one of the largest cost items for a hospitality venue is its front-line staff.  VMS solutions can use data analytics to provide margin analysis by time of day and optimise rostering of staff at busy and quiet times of the day to drive profitability for the hospitality venue.

Increased data generation has also led to VMS platforms introducing machine learning and AI tools to provide predictive insights, automate tasks, and improve the overall customer and end user experience.

Final word

With almost a decade of investing in VMS companies under our belts at Pemba, we are more enthusiastic than ever about the future potential for vertical software.  If you are a founder of a VMS company or have questions about this article, then please to discuss further.

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