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Horizontal vs vertical products  

Joel Spolsky:

Vertical software is much easier to pull off and make money with, and it's a good choice for your first startup. Here are two key reasons:

  • It's easier to find customers. If you make dentist software, you know which conventions to go to and which magazines to advertise in. All you have to do is find dentists.
  • The margins are better. Your users are professionals at work and it makes sense for them to give you money if you can solve their problems.

Making a major horizontal product that's useful in any walk of life is almost impossible to pull off. You can't charge very much, because you're competing with other horizontal products that can amortize their development costs across a huge number of users. It's high risk, high reward: not suitable for a young bootstrapped startup, but not a bad idea for a second or third product from a mature and stable company like Fog Creek.

Spot on. And with the ever decreasing costs of starting up, tiny vertical niches that were previously not worth anyone's time are becoming worthwhile targets for first-time entrepreneurs.

If you haven't checked out Trello, which is the product Joel is referring to, be sure to do so. It's probably the best generic people/process-management tool I've found online yet. I'm not kidding.

While we're on the subject of Trello and Spolsky, they both make a great example of an experienced entrepreneur (Joel has an array of profitable products under Fog Creek Software, and also cofounded the hugely successful StackOverflow) using a cash pile to protect a project from short term profit considerations.

Whether that leads to a profitable exit for Trello is another matter, of course.

More from the library:
Phantom user profiles for non-registered users
The SaaS market in Japan
Bootstrapping and knowing how to make things