Vertical Market Playbook
Strategic framework for vertical software - from positioning through go-to-market to strategic choice testing.
The vertical software challenge
Vertical markets demand a different playbook.
In horizontal software, you can spray and pray. Cast wide, iterate fast, let market pull tell you where to focus. The addressable market is enormous. You can afford to waste effort finding product-market fit.
Vertical is the opposite. The total addressable market is fixed. You’re selling ERP to dentists, or workforce management to care homes, or compliance software to wealth managers. The category is defined. Everyone knows who else is playing.
This creates different constraints. You can’t out-spend competitors to grab share. You can’t pivot to a new vertical when this one gets hard. You need to win through positioning, sequencing, and strategic discipline.
Most vertical software companies get this wrong. They copy horizontal playbooks - chase every prospect, add features for anyone who asks, compete on price when differentiation feels hard. Then they wonder why growth stalls and margins compress.
The vertical playbook is different. Narrower, deeper, more deliberate. It’s about making real choices, framing how you’re judged, and sequencing expansion so each win makes the next one easier.
This essay lays out that playbook. Not theory - practice. The moves that work when markets are small, categories are fixed, and trust matters more than virality.
Make real choices
Strategy only becomes real when you decide where to play and how to win - and the opposite could also be rational.
Most companies say they’ve chosen where to compete. They haven’t. They’re describing their current customer base, not making a strategic decision.
Test it with the flip test. If the opposite of your choice could also be rational, you’ve made a real decision. If the opposite sounds absurd, you’re just restating the obvious.
In vertical software, the boundaries matter more than the industry label.
You might serve healthcare. But the real choices live in the specifics. Enterprise hospital groups or long-tail GP practices? Core clinical system or compliance layer? Which geography? Which buyer persona? NHS trusts in England or private hospitals across Europe?
Each choice has a rational opposite. Enterprise versus long-tail - both work, different economics. Core system versus adjacent workflow - both defensible. UK versus international - both viable, different execution.
What matters is that you choose, then hold the line long enough for benefits to compound.
If you say “we serve mid-sized UK care homes with workforce management and compliance tools,” that’s a choice. The opposite - “we serve enterprise US hospital groups with core clinical systems” - is equally rational. You’ve picked a lane.
If you say “we serve healthcare,” you haven’t chosen anything. You’re just describing a sector.
Once you’ve drawn the field, decide how you’ll win on it. Two logics work: lowest cost or distinctive value.
Lowest cost means standardise, automate, drive down unit economics. Sell on efficiency, operational leverage, price. This works when buyers treat the product as commodity and care most about total cost of ownership.
Distinctive value means build deep domain fit, create switching barriers, deliver an experience worth a premium. Sell on outcomes, risk reduction, strategic advantage. This works when buyers care about differentiation and will pay for it.
Both are rational choices. What fails is straddling the middle.
Selling on “superior customer service and competitive pricing” isn’t a strategy. It’s trying to have it both ways. You end up with neither the cost structure to compete on price, nor the differentiation to command a premium.
In vertical markets, advantage lives in small, compounding details. Regulatory nuances handled cleanly. Workflows that reduce risk. Integrations that remove headaches. The strength comes from a system of reinforcing activities, not a single feature.
This is where most strategies leak. You’ve chosen differentiation, but your roadmap includes cost-cutting that removes the details that create switching costs. You’ve chosen cost leadership, but your sales team sells customisation.
The choices sound clear until you trace them through the activity system.
Every decision should reinforce the choice. If you bet on cost, architecture, support, pricing, and sales all need to reflect efficiency. If you bet on differentiation, roadmap, marketing, partnerships, and service need to reinforce distinctiveness.
Fit compounds. Incoherence leaks.
The firms with the strongest economics are rarely the widest in scope. They’re the ones whose activity systems align. They’ve chosen where to play and how to win, then built everything to reinforce that choice.
Write down where you play in one line. Write how you win in one line. For each, flip it. Does the opposite sound rational? If no, you’re describing what you do, not what you’ve chosen.
Pick cost or differentiation. List the five to seven activities that must reinforce that choice. For each one, ask whether it strengthens your logic or blurs it. Kill anything that blurs.
Review this quarterly. Any project that breaks the boundary or tries to have it both ways fails the test. Fund the system you’ve chosen. Starve the distractions.
The test isn’t just for the initial choice. It’s for everything that follows. If a decision doesn’t reinforce where you play and how to win, you’re drifting.
Position within fixed categories
In most vertical markets, the software offer is well defined.
Everyone has a version of the same modules, the same dashboards, the same pitch about saving time and money. Buyers see a shelf of products that blur together.
This is why categories can be misleading. Being labelled “ERP for X” sounds precise, but in practice it narrows the story to the least interesting part. The real contest is about how each product is understood in context.
You can’t escape the category - buyers think in categories, procurement teams compare like-for-like, market analysts put you in boxes. But you can control the frame.
There’s a useful split between consideration attributes and retention attributes.
Consideration attributes are what sway the buyer at the point of choice. Risk, compliance, margin, reputation. These are what procurement committees care about. These are what get you shortlisted, what win the RFP, what decide the contract.
Retention attributes are what keep users content after go-live. Usability, reliability, support. These matter for renewals, for expansion, for advocacy. But they rarely decide the initial sale.
Both are important. But they work on different timescales.
The trap is leading with retention. A beautiful interface, or staff who say they love the tool, rarely decides the initial sale. Buyers are often not the daily users, and their calculation is different.
They’re asking: Does this reduce our risk? Does it protect our margin? Does it help us comply? Does it make us look good to our stakeholders?
If your positioning answers those questions, you get shortlisted. If you lead with “our UX is intuitive and our support is responsive,” you might win renewals but you’ll lose initial sales.
Positioning in vertical markets is less about inventing a category and more about deciding which attributes you want to foreground.
That choice has to be grounded in what you can credibly claim.
If your strength is auditability, the natural frame is assurance. You’re not selling “construction management software” - you’re selling “the system that keeps you audit-ready when the regulator arrives.”
If it’s scheduling and visibility, the frame is margin and throughput. You’re not selling “workforce management” - you’re selling “the tool that stops you paying overtime for shifts you didn’t need to cover.”
If it’s workflows that shape the service delivered, the frame is outcomes. You’re not selling “care home software” - you’re selling “the system that proves you’re delivering person-centred care.”
The underlying product may look similar to the competition. But the frame shifts how it’s judged - and whether it feels like the obvious choice.
In vertical markets, market share is built on trust and proof. Everyone knows who else is in the game. Word travels. Positioning isn’t decoration, it’s a filter.
Done well, it guides buyers to weigh your product on the terms that play to your strengths. Done poorly, it leaves you swimming in a pool of sameness.
Context beats category. Categories are given. Context is chosen. The work is to decide what should matter most at the point of purchase - and then live up to it.
Sequence expansion deliberately
You’ve chosen where to play and how to win. You’ve positioned on attributes that play to your strengths. Now you need to grow.
In vertical markets, the instinct is to go wide. The addressable market feels small. Surely you need to serve everyone in the vertical to hit your growth targets?
Wrong.
Even in small verticals, spray-and-pray kills momentum. You spread resources thin, confuse the market about who you’re for, and end up with a fragmented customer base that’s expensive to serve.
The right move is depth before breadth. Win a corner, then grow out.
Start with an Ideal Customer Profile that’s narrower than feels comfortable. Not “mid-sized care homes” but “50-200 bed residential care homes in the South East running on outdated on-premise systems with compliance headaches.”
This feels too narrow. It is deliberately narrow. The goal is to become the obvious choice for a specific, reachable group before you expand.
When you’re the obvious choice, three things happen.
First, sales cycles shorten. Prospects have heard of you. They’ve seen your case studies. They trust that you understand their specific problems because you’ve solved them for others exactly like them.
Second, product development focuses. You’re not trying to serve everyone. You’re building deep domain fit for one segment. Every feature compounds your advantage in that beachhead.
Third, customer success improves. You’re serving similar customers with similar needs. Onboarding gets repeatable. Support gets efficient. Advocacy grows because customers see others like them succeeding.
This creates a halo effect. Your beachhead customers become your best salespeople. They speak at conferences, they answer reference calls, they introduce you to peers in adjacent segments.
That’s when you expand.
But expansion should follow a logic. Don’t jump randomly to the next opportunity. Sequence deliberately around the halo.
If you’ve won 50-200 bed care homes in the South East, the natural next move might be 200-400 bed homes in the same region. Same buyer persona, same regulatory environment, similar workflows - but bigger scale.
Or it might be 50-200 bed homes in the Midlands. Same scale, same needs, different geography - but your existing case studies still resonate.
What you don’t do is jump to domiciliary care agencies in Scotland. That’s a different buyer, different regulations, different workflows. You’re starting from scratch, and you’ve thrown away the halo.
Expansion should feel like a beachhead extending, not a new beach landing.
Each new segment should share 70-80% with what you’ve already won. Buyer persona, regulatory environment, scale, geography, use case - pick one or two to vary, not all of them.
This lets you reuse case studies, refine the same core product, leverage the same partnerships. The marginal cost of winning the next segment drops. Your advantage compounds.
The companies that dominate vertical markets didn’t do it by serving everyone from day one. They did it by winning a corner so decisively that expansion became inevitable.
Procore didn’t start by selling to every construction company. They focused on commercial general contractors in the US, built deep domain fit, then expanded to subcontractors, then residential, then international.
Veeva didn’t start by serving all of life sciences. They focused on large pharma sales and marketing, became the standard, then expanded to clinical, then quality, then smaller biotech firms.
Depth before breadth. Win a corner, make it defensible, then grow out. That’s how you turn a narrow start into category leadership.
Vertical markets are not an excuse to blur focus. They’re where focus matters most.
Price as strategic statement
One more lever ties this together: pricing.
Most vertical software companies treat pricing as a necessary evil. It’s technical, political, awkward. So it gets set once, left alone, or adjusted reactively when a competitor undercuts.
This is a mistake. Pricing is a strategic choice. It’s one of the clearest signals you send about where you play and how you win.
If you’ve chosen cost leadership, pricing should reflect that. Transparent, simple, lowest in category. The message: we’re operationally efficient and we pass savings to you.
If you’ve chosen distinctive value, pricing should reflect that too. Premium, tied to outcomes, structured around the value you deliver. The message: we’re worth more because we solve problems others can’t.
What kills momentum is pricing that contradicts your strategy. You say you compete on differentiation, but your pricing is mid-market commodity. Or you say you’re the efficient choice, but your pricing is opaque and includes expensive add-ons.
Buyers notice. Pricing teaches them how to think about you.
In vertical markets, pricing also signals maturity and category position. The premium player charges more because they can - they have proof, they have advocates, they have switching costs working in their favour.
If you’re the new entrant, you might price lower to get in the door. But the goal should be to climb the pricing ladder as you build proof and differentiation. If you’re still the cheapest option three years in, you’re leaving money on the table or you’ve failed to build real value.
Treating pricing as a core discipline forces clarity. What do we believe customers will pay, and why? How do we measure the trade-offs - revenue, churn, win rates, renewals? Are increases tied to improvements customers can actually see?
Handled well, pricing protects margin and sharpens strategy. Handled casually, it undermines both.
The integrated playbook
Vertical markets reward strategic discipline.
The playbook isn’t complicated, but it requires holding the line when instinct says to blur.
First, make real choices. Where will you play, and where won’t you? How will you win - cost or differentiation? Test each choice with the flip test. If the opposite isn’t rational, you haven’t chosen anything.
Second, position deliberately. You can’t escape the category, but you can control the frame. Identify the consideration attributes that matter at point of purchase. Build your positioning around them. Lead with what sways buyers, not what delights users.
Third, sequence expansion around the halo. Start narrow - an ICP that feels uncomfortably tight. Win that beachhead so decisively that expansion becomes inevitable. Then grow segment by segment, keeping 70-80% overlap with what you’ve already won. Depth before breadth.
Fourth, let pricing reinforce your strategy. If you compete on cost, price transparently and low. If you compete on differentiation, price for value and climb the ladder as you build proof. Don’t let pricing contradict the strategic choice you’ve made.
These pieces work together. Real choices create focus. Positioning frames how you’re judged. Sequencing compounds your advantage. Pricing reinforces the strategy.
The companies that dominate vertical markets didn’t get there by being everything to everyone. They got there by choosing a corner, winning it decisively, and expanding with discipline.
Vertical markets are unforgiving. The addressable market is fixed. Everyone knows everyone. Trust and proof matter more than features. You can’t out-spend your way to dominance.
But that constraint is also an advantage. In horizontal markets, competitors can always pivot, rebrand, chase the next trend. In vertical markets, once you’ve won trust and built proof, you’re hard to displace.
The playbook is narrow, deep, deliberate. Choose where to play. Frame how you’re judged. Win a corner. Expand with discipline. Let every decision reinforce the strategy.
Do this well and you don’t just survive in a vertical market. You own it.
This essay synthesises ideas from:
See also: Reading Guide for the complete collection of Field Notes.