At Nine Four Ventures, we appreciate founders trying to solve very specific challenges for targeted customer bases. Some might initially think the market sizes for those opportunities are too small. However, markets are not static, they are dynamic and constantly changing, which is why we appreciate smaller initial markets representing interesting “wedges” into larger adjacent markets. Initially focusing on a smaller market can be advantageous because solving a major, yet specific, pain point tends to lead to a faster adoption curve with an incredibly engaging, loyal customer base. Over time, additional products and features can be added to the original solution that solve adjacent challenges in larger adjacent markets. Thus, what might initially look like a small market, is actually a vertical “wedge” acting as a key unlocking tremendous value in the form of a clear path to a much larger market opportunity. Over time, a vertical solution can develop into a horizontal platform that becomes the ultimate system of record or source of truth on which businesses are run. The activity systems of these businesses continuously reinforce each other, forming the underpinnings of incredibly sticky revenue.
Nine Four Ventures not only appreciates founders taking this approach but also believes many “wedge” opportunities exist in PropTech today across verticals (electrical, flooring, pest control, plumbing, roofing, etc), asset type (commercial office, multi-family, SFR), ownership type (institutional, individual) and use cases (marketing, CRM, payments, etc). Today many service providers across those vertical, asset and industry types still operate internal workflows on pen, paper, Excel, email, phone and fax machine. Data is unstructured and offline, which prevents knowledge from being shared across the company. For those service providers not using pen and paper workflows, most tend to use monolithic legacy software but the advent of cloud, vertical specific software can change all of this. Cloud software can digitize lots of existing work flows including everything from marketing, customer support, eCommerce and payments, just to name a few.
Historically, the unsexy flooring and plumbing industries were neglected by software companies. Often and many times, a specific segment of a specific vertical focused on a specific asset type was considered too small to support a massive business. However, new startups are proving the critics wrong. For example, a few started by selling CRM software to SFR technicians with less than five employees but now offer full suites of software products from CRM to marketing, to commerce, to payments and have become absolutely critical pieces of infrastructure for many SMB technicians across the country. As a result, these startups are well on their way to successfully transitioning from vertical “wedges” into horizontal business management platforms increasing the throughput of its users helping them evolve from offline to online.
Interestingly, often times, by starting with selling SaaS to service providers and helping them acquire and maintain customers, it inadvertently aggregates the supply and attracts the demand liquidity needed to build a successful marketplace. This is another reason why Nine Four Ventures is so excited about these types of businesses. They tend to leverage both a SaaS and marketplace business models and take advantage of 1) repeatable recurring annuity SaaS revenue and 2) the usage fee revenue from a marketplace or payments helping drive faster GTV growth (gross transaction volume).
