Diagonal SaaS

Not to be confused with this iconic diagonal.

I was chatting with another investor recently and (somewhat) joked that I’m interested in diagonal SaaS—companies that are both vertical and horizontal. As VCs, we’re obligated to write about punny but relevant terms, so here we are.¹

Why diagonal?

Horizontal products (especially at the infrastructure layer) have the power to help users from disparate industries and teams, but that flexibility comes at the cost of GTM repeatability, especially in the early days. Vertical applications, on the other hand, have a more consistent ICP and GTM motion earlier on but often run into TAM constraints.

However, successful startups continually expand from their entry point. Vertical applications go deeper with their core customers and expand horizontally by building a more general-purpose product.² Horizontal startups add features to help them better compete with incumbents and, over time, verticalize through deeper integrations with industry-specific workflows and targeted GTM motions.³

In other words, the goal of every successful enterprise company is to move diagonally, primarily through product expansion and GTM refinement. The question, of course, is how?

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In my conversations with world-class product leaders (at IVP portfolio companies CrowdStrike, Rubrik, HashiCorp, Aiven, and Monte Carlo) I asked what they did to navigate this journey.⁴ With the caveat that these are all horizontal infrastructure products, here are a few points that stood out to me:

• The moment you have PMF, you should be constantly asking yourself, “What can we do to expand?”⁵

  • Most companies find PMF in markets that aren’t as large as they hoped (e.g. due to competitive destruction), so expansion is critical

  • Look for (1) customers begging you to add a feature so that they don’t have to buy another product and (2) customers using the product in unexpected, borderline dumb, ways

• Focus on workflows for existing buyers/users to start

  • It’s easier to upsell your existing users than fighting to communicate your value to a new team

  • Once you start selling to new users or teams, validate that there is synergy with your existing product line and that you uniquely should be building this unified solution. Even then, it will be an uphill climb as you convince the customer to embrace your strategic direction. That’s ok!

• Find ways to gain leverage on your existing assets and make the integrated whole greater than the sum of its parts

  • Collect data once but sell it multiple times across discrete, monetizable areas. These may be multiple products, or higher tiering for the same product

  • Perception/psychology also matters. As a customer, paying $100/month for four products from the same company feels like greater value than paying $100/month for one product, even if that single product accomplishes the same as those four products put together

• Your growth is rate-limited by your GTM engine, so partner early with your commercial counterparts

  • If your reps don’t understand the product, Sales Ops can’t figure out how to assign quotas, PMMs can’t communicate the value, or Demand Gen can’t target your ICP, your development efforts will be in vain

  • The clarifying questions they ask and the success metrics they help define will help drive success for the new products and pave the way for successful expansion

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It’s easy to get caught up in the chaos and firefighting when you’re building. But find a way to step back periodically, reevaluate the landscape, intentionally evaluate expansion opportunities, and yes, be boldly and dynamically diagonal.

I swear I found this XKCD after I wrote the post

1. I wasn’t aware until after publishing that someone else had used the same terminology, though they are more focused on expansion for vertical SaaS. Please do read their post as it's very good!

The Past, Present, and Future of Field Services

2. ServiceTitan is an incredible example. It’s also worth reading everything written by Tidemark on this topic

3. Companies like Snowflake and Databricks have significantly verticalized their positioning over time

4. This section was originally going to be Part Four of my Scaling Product Orgs series, but since I haven't written Part 3 six months later, I'll give the tl;dr now

5. Thinking about expansion so early runs counter to the standard VC-ism of “focus,” but I'd propose that what we mean by “focus” is "intentionality." It doesn't mean doing only one thing; it means having an intention for what you're hoping to accomplish, even if it's a long-term bet