#105: An Important Software Law, OpenGov vSaaS CEO Interview, 2024 Linear Feedback
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
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Alright, let’s get to it…
One vSaaS Breakdown:
The Platform/Bundle Software Law
There is a really important law in software.
If you do not follow the law, it WILL eventually kill your business.
The law of platforms.
The law is relatively simple --
If you don't own the platform or bundle, you will eventually get eaten.
Let me show you some concrete examples:
Example 1:
There was a time where you use to purchase word processing software. In addition to that, you'd also purchase spell check software. Raise your hand if you’re old enough to recall 🤚
But what ended up happening?
Well Microsoft, who owned the operating system and the hardware of the computers we all purchased, built their own Word Processor.
Have you ever heard of the company Corel, the creator of Wordperfect, the incumbent to Microsoft Word? I haven’t…
What happened next?
Spell check eventually just became a feature within Microsoft's Word Processor, so we no longer had to purchase the spell check tools.
Microsoft's entire strategy is to own the Operating System. From there, they can add it to the bundle - inclusive of all the software you need - at no incremental cost.
ANY new technology/software that gains any sort of popularity, they can easily build, add to the bundle, and they kill the up and comer.
This has happened OVER AND OVER again.
If you want a more recent example...
Let’s look at Slack.
Slack essentially invented the real-time comms market for businesses. Their growth was astronomical, until Microsoft copied it, launched Teams, added it to the bundle at no incremental cost, and Slacks growth was throttled...
You eventually get eaten if you do not become the operating system. So you have two things that I think are really important to think about...
First, building horizontal business software is incredibly risky.
If you crush it, there is a high probability you just get copied by the folks that own the operating system.
The law of operating systems also states that there are usually room for 2 giants- in nearly every segment --
Apple/Android in mobile
Microsoft/Apple in computers
Google/Bing in search
But also in EVERY single industry - doctors offices, law firms, pool cleaning companies, you name it!
So, second, I'd strongly recommend building industry-specific business software.
Why? Well Microsoft/Apple/Google typically won't go into any specific industry, in most cases, it's just too small and doesn't really move the needle.
With that said, this law still applies in industry specific software. There is a Microsoft/Apple in nearly every vertical. A software company that OWNS the space.
A few examples:
Healthcare: Epic
Restaurants: Toast
Trades: ServiceTitan
But no one becomes the platform on day one. Most industry-specific operating systems start out with ONE FEATURE. I call it a wedge product.
Something that gets them in the door. Something that proves their reputation, something that kills it for customers.
Some historically great wedge products?
CourseKey -> Attendance Automation
Toast -> POS
Roofer -> Proposal Tool
When you nail the wedge product, you quickly move into multi-product, ideally having 4-5 more point-solutions that are purpose-built for your industry.
At that point you have to EAT THE FROG. And you build the platform/source of record/ERP/whatever your industry calls it. People will give you a million reasons not to pursue it...
Long sales cycles.
Too painful of implementation.
ETC.
They are right. BUT what they don't understand is this very important law of software. If you don't eventually become the platform YOU WILL get eaten.
Don't let it happen to you...
Swallow the tough pill BEFORE the incumbent duplicates your feature set and charge $0 for it.
One ‘How To’ Question:
What are your favorite topics here that you’d like to see more of in 2025?
Friendly Reminder:
Go Gift A Copy Of the vSaaS Bible for Your Nerdy Friends This Holiday :-)
One Biz Story:
Zac Bookman (Founder & CEO of OpenGov) Interview With Harry Stebbings
Zac Bookman is one of the sharpest minds in vertical SaaS. He was an angel investor in my business and I’ve learned SO MUCH from him.
He built an incredible business - vertical SaaS for local governments - and just sold it earlier this year to Cox for $1.8 BILLION.
Zac doesn’t speak publicly often, but when he does, I recommend you not miss it.
Bookmark this and listen to it during your holiday travels :-)
You won’t regret it!
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com