#109: 9 Keys To Monopolizing Your Industry, The Story of Reach, Embedded Ads Cross $1B+ Revenue At Uber
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
Todays newsletter is sponsored by Check, the leading payroll infrastructure provider and pioneer of embedded payroll.
Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms supporting 20M+ employees such as Wave, Homebase, and HousecallPro .
Alright, let’s get to it…
One vSaaS Breakdown:
9 Keys To Monopolizing Your Industry (Part One)
I did a presentation this past week in the Bahamas for my friends over at ValSoft for their Leadership Conference. Thought you all would enjoy it…
Key #1: You CAN Monopolize in vSaaS
Standard TAM Advice Is NOT
Applicable in Vertical Market Software
Your target should be 100% market share.
I see 30%< ALL THE TIME
Key #2: Abide by the Platform Law of Vertical SaaS
The Second Key is you MUST eventually become the platform / ERP of your space.
If you do NOT do this
YOU WILL GET ERODED.
There will be a million reasons not to swallow the frog…
But you just have to. You have to eventually become the source of truth before you get eaten by someone who does.
Your customers want a one stop shop. Especially in low-tech / non-tech verticals.
Key #3: Becoming THE Platform Of Your Space Goes FAR Beyond Software…
The speed and cost of software is getting commodotized with AI. This use to be a moat, and it really isn’t anymore.
Do a thought exercise…
If someone could copy your entire software tomorrow, then cut the price in half, what are you offering above and beyond that?
A few key things you can add to protect yourself…
Owning the industry’s app store
Owning the industry community
Being too painful to replace (HR, Payments, etc.)
Key #4: Shrink Your ICP, Don’t Grow It
Standard TAM advise is to find a giant industry and go after. That’s great advise for a non-operator. PS - it typically comes from a non-operator. My transparent opinion of this approach is it’s intellectual lazy.
What actually works when your running a business? You break down your TAM into an ideal customer profile that is VERY SMALL. You monopolize it. Then you move to the next one. You make the small segment of customers the happiest you possibly can before expanding the ICP. Below is an example of how we did it with Trade Schools:
Key #5: Hire Customer Facing Folks From Within Your Industry
Hiring from the industry that you serve is incredibly important. But it is all dependent on the job.
One of the hardest problems vSaaS Companies Have? Identifying the Right Sales Rep Profile
Typically you have two choices:
Hire a SaaS sales person and teach them the industry
Hire an industry person and teach them sales
The truth is both of these are really hard and neither work that well. What i’ve found that works better is #1, BUT ONLY IF you hire an ‘Industry Engineer’ to work with them. It just takes too long to teach someone the industry, so if they can work alongside of someone who knows it in/out it’s a shortcut. I wrote up a blog on this if you want to go deeper.
OK — that’s all for now.
Part Two of the 9 Keys to Monopolizing your industry is coming next week :-)
Be on the lookout for it in your inbox on Sunday.
One Biz Story:
The Story Of Reach - Embedded Marketing for vSaaS Companies
If you're building a vertical SaaS company, you're probably wrestling with this question: how do you help your customers grow, not just operate more efficiently?
We're seeing this everywhere in VSaaS right now. Toast is adding more marketing features to compete with doordash, PE rollups are merging software with agencies, and seemingly every VSaaS company is trying to figure out how to increase ARPU by helping their customers acquire more customers.
The challenge? You basically have three options, and they all kind of suck:
Build marketing features yourself (expensive, takes forever, never quite good enough)
Buy/build an agency (hard to scale, low margins, management headache)
Partner with external marketing tools (SMB customers hate having separate systems and integrations)
Enter Reach - a company that just came out of stealth to announce their >$4M fundraise to solve this exact problem for VSaaS platforms.
Here's why this is interesting for VSaaS founders...
The Core Challenge:
Your customers already trust you with their operational data. You know their customers, their transactions, their inventory, their appointments - everything. And you've probably tried to leverage this by:
Building basic email/SMS features (but keeping up with Klaviyo is impossible)
Adding reporting dashboards (that nobody uses)
Maybe even acquiring or building an agency (goodbye margins & tech multiples)
I talk to VSaaS founders every week who've tried these approaches. The common thread? None of them really solve the core problem: how to offer sophisticated marketing capabilities without the engineering overhead of building them yourself.
The Founding Story & Key Insights:
The founders discovered this problem while building Kustomer (acquired by Meta for $1B+). Peter "PJ" Johnson (CEO) and Oren Bukspan (CTO) were the first two employees there.
At Kustomer, they learned something fascinating about data integration:
Customer Support: Over 80% of their clients' support requests were about specific products or services that customer had purchased:
"Where is my order?"
"Can I change my dinner reservation time?"
Customer Engagement: Even the most basic marketing campaigns rely on purchase data:
Email customers after their first purchase
Re-engage customers who haven't purchased in a while
Instead of building just another ticketing system, they built a whole data platform that maintained a copy of all purchase/service data for their customers. This strategy helped them land major clients like Amazon, American Express, and Lululemon.
But here's where it gets really interesting - they didn't realize how critical this data would be for ads. In fact, it was one of the key reasons Meta acquired them.
Why? Because ads platforms are trying to answer two crucial questions:
Did the ad we showed actually work? (Beyond just clicks)
What's the real customer lifetime value?
It’s easy for large businesses to integrate their data sets with marketing & ads tools, but they couldn’t figure out how to apply it to help SMBS: local burrito shops don’t have the budget or prowess to buy and integrate these tools.
How Can SMBs Compete with Rollups & Enterprise?
Let me share a quick story that I think perfectly illustrates the power of what Reach is building...
In the early 1990s, independent dairy farmers in California faced a challenge. Americans were drinking more soft drinks and health drinks from large corporations. Individual farmers couldn't afford to compete with TV, radio, or newspaper ads. Their solution? They pooled their resources and created a marketing board that gave us the famous "Got Milk?" campaign.
This same principle applies to data and marketing today. When Walmart advertises on Google search, they get better results than Joe's General Store next door - even with the exact same campaign in the same city. Why? Because their scale gives them better data on ideal customers.
We've already seen VSaaS tools act as the "rollup" for operational benefits:
Odeko buys coffee beans in bulk for independent coffee shops
Toast negotiates better payment processing rates
ServiceTitan pools purchasing power for contractors
Now Reach is doing the same thing for marketing data and capabilities.
The Big Move:
Instead of building another marketing tool (we definitely don't need more of those), Reach is doing something much smarter:
They're building embedded marketing infrastructure for vertical SaaS platforms. Think about it like this:
Just like VSaaS platforms embed Stripe for payments
Just like they embed Check for payroll
They can now embed Reach for marketing
Why This Could Be Huge:
The market is massive: 30M+ small businesses in the US alone spending $100B annually on marketing
VSaaS platforms are under pressure to help customers grow, not just operate
Small businesses are desperate to consolidate their tech stack and reduce complexity
The Risk Factors:
There are two interesting risks here:
Some VSaaS platforms are trying to build this themselves (like Toast & ServiceTitan)
Reach sometimes reveals that paid ads aren't actually profitable for certain businesses - which could limit adoption but actually provides immense value to SMBs by preventing wasted spend
My Take:
This is exactly the kind of boring but beautiful business I love. Why?
Clear value prop: Help VSaaS platforms offer marketing without building it
Strong moat: Deep integration with customer data is hard to replicate
Proven team: These folks helped build a $1B+ outcome in the customer data space
Perfect timing: VSaaS is growing faster than regular SaaS, and the push for embedded everything is strong
Matrix Partners led Reach’s round, with Waybury Partners and Red Antler's venture arm participating. Smart money betting on a smart team.
What's Next:
Keep an eye on this space. I think we're going to see a lot more embedded infrastructure plays in vertical SaaS. The first wave was operations (Stripe), the second was fintech (ala Check), and now we're entering the third wave: growth tools.
For vertical SaaS founders reading this - you're going to face increasing pressure to help your customers grow, not just operate. Building marketing tools yourself is probably not the answer.
Linear fam, what do you think about this approach? Have you seen other interesting plays in the embedded infrastructure space? Hit reply and let me know.
One ‘How To’ :
Uber Crosses $1 BILLION In Embedded Ad Revenue
Reminder that Uber does $1B+ in ad revenue.
Think about adding Advertising to your vSaaS platform...
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