Welcome to the 35th Network Effects Newsletter,
How do the best vertical businesses turn market structure into durable growth? Vertical buyers are shaped by workflows, peer norms, and regulation.
Selling to car dealerships, hospital administration, and property managers is inherently different from selling to tech-native Fortune 500 executives.
They are capacity-constrained and risk-averse, and they rarely adopt software for novelty or experimentation.
As a result, vertical SaaS companies win by understanding their market's economic machinery better than anyone else. In this article, we’ll break down the three fundamental parts vertical operators need to understand about their business to develop the game board and decide where to invest their resources.
Let’s dive in.
The Vertical Market Structure Framework
Vertical operators anchor their strategy around three market components:
Industry Total Addressable Market (TAM)
Understanding how value, GMV, and power are distributed across the vertical.Decision Frequency
Identifying which decisions create dependence, lock-in, and pricing power.Detailed Buyer Journey
Mapping how risk, approval, and justification shape purchasing behaviour.
Together, these define the game board, the terrain on which durable vertical businesses are built, and how strategic investments should be allocated to grow the platform
Illustrative Market Size
Industry Total Addressable Market (TAM)
For vertical businesses, TAM is not a vanity metric. It is a structural map of power, fragmentation, and opportunity. A surface-level TAM number rarely tells you where value actually accrues. The goal is to determine the underserved and/or overlooked segments of the vertical.
For example, DoorDash identified suburban markets early, areas with lower competition density, higher basket sizes, and less aggressive incumbent behaviour. This structural insight shaped its expansion strategy long before it showed up in headline market share.
Similarly, Opendoor identified veterans as an underserved segment in residential real estate, launching Hero’s Home Credit to extend tailored financial products to a cohort poorly served by traditional lenders.
In addition, they look at how GMV flows between participants (e.g., employees, suppliers, vendors, agencies, etc), where margins concentrate, and which segments are structurally advantaged or disadvantaged. This perspective allows teams to identify where software can become embedded.
Slice, for example, didn’t stop at point-of-sale for pizzerias. It methodically expanded across pizza box purchasing (COGS), digital advertising (sales & marketing), and delivery logistics (wages & labor), capturing a larger share of industry GMV while increasing switching costs.
Key Questions on Industry TAM
- What is the market size of the vertical?
- What are the key segments of the markets
- What are the players and their market shares by size, customers and geography?
- Which parts of the industry workflows are already digitized versus still greenfield?
- How is the total industry GMV distributed across participants?
Decision Frequency
Decision frequency is one of the most underappreciated drivers of durability in vertical SaaS.
It’s easy to confuse usage with dependence. The strongest vertical platforms are not necessarily the most used. They are the ones customers cannot operate without when it matters.
Every vertical has a natural hierarchy of decisions:
Daily decisions (dispatching, pricing, scheduling, approvals)
Weekly decisions (staffing, procurement, optimization)
Monthly or quarterly decisions (reporting, reconciliation)
Annual decisions (vendor selection, audits, renewals)
Durability emerges when software is tied to high-frequency, high-stakes decisions. These decisions create habit, operational reliance, and greater switching costs. Over time, the product stops being perceived as “software” and begins to be treated as infrastructure.
Decision frequency also dictates replacement behaviour. Systems embedded in revenue capture, compliance, or customer trust are rarely replaced quickly. In contrast, tools positioned as efficiency upgrades or analytics layers are constantly re-evaluated and repriced.
Understanding which decisions matter, and when they are reconsidered, allows vertical companies to time product expansion, pricing leverage, and competitive displacement with precision.
Key Questions on Decision Frequency
- Which decisions happen daily, weekly, monthly, or annually?
- Are these decisions mission-critical or convenience-based?
- What is the natural replacement cycle in this vertical?
- How does decision frequency correlate with retention and expansion?
- Are customers switching due to risk, cost, or innovation?
Detailed Buyer Journey
Vertical SaaS buyer journeys are rarely linear, and there are always nuances unique to each vertical. Buyers don’t wake up wanting new software. They wake up wanting to avoid risk, stop leaks, or fix something that has just broken.
Discovery typically happens through:
Peer referrals and industry word-of-mouth
Vendors and incumbents adjacent to the workflow
Niche content or conferences, not broad digital marketing
Then the buying process is usually triggered by a specific event:
A regulatory change
A lost customer or failed audit
Operational scale exceeding existing tools
A leadership or ownership transition
Importantly, the economic buyer is rarely the primary user. Operators may champion the product, but approvals often flow through finance, ownership, or risk functions. Winning deals requires selling to both simultaneously.
Segment detail also becomes decisive here. SMBs optimize for speed and cash flow. Mid-market buyers care about control and scalability. Enterprise buyers prioritize risk mitigation and vendor stability. Each segment has a different threshold for price, complexity, and proof.
Key Questions on Detailed Buyer Journey
- Where do buyers discover new solutions (peers, vendors, content, incumbents)?
- What event or pain initiates the buying process?
- What are the non-negotiable purchase criteria?
- What outcome does the buyer need to defend the decision post-purchase?
- What objections are segment-specific?
Conclusion
Great vertical businesses are not built by chasing every feature request or segment expansion. They are built by understanding where structure works in your favour—and then investing aggressively there.
TAM defines where value concentrates.
Decision frequency defines where dependence forms.
The buyer journey defines where trust is earned