Strategies to solve a problem and win in an existing market

Ravi Kumar.
3 min readJul 3, 2022

Over the past decade, we’ve seen three successful paths to market leadership:

1. Attack an underserved market:

Historically, the most valuable vertical software businesses have been built by serving industries that have lacked access to software. Simply put, it’s much easier to capture leadership in a greenfield market without incumbents.

In this spirit, Procore‘s* founder, Tooey Courtemanche, realized that the construction industry was woefully underserved by existing software products. He took advantage of mobile Internet access on the job site to build a modern way for the construction industry to collaborate in the cloud. Procore has grown to lead the industry with an end-to-end construction management platform, creating a multi-billion company in the process.

“Attacking an underserved market” can take different shapes in the trajectory of a startup:

  • Underserved industry: Like Procore, ServiceTitan* attacked an entire field services industry underserved by modern software. Now a multi-billion dollar company, ServiceTitan provides a full management tool for owners who are fed up with running their plumbing or HVAC business on pen and paper.
  • Underaddressed market segment: In markets with strong enterprise incumbents, we’ve seen startups win by catering to a neglected market segment. Companies like Mindbody*, Clio*, and Weave* found their path to market leadership by starting in the SMB segments overlooked by incumbents.
  • New and growing industry: New verticals lack strong incumbents, opening the door for startups to capture market leadership. Shopify*rode the wave of long tail e-commerce, Dutchie is attacking the emerging cannabis market, Aurora Solar is benefiting from growth in the solar installation market, and Mambu has built a multi-billion dollar business by catering to a new generation of fintechs and digital banks.

2. Address an overlooked problem:

Once an industry has been served by a vertical market leader, they can be very difficult to unseat. In more mature markets, we’ve seen new leaders emerge by attacking problems that are poorly addressed by market-leading incumbents.

For example, nCino* found an opportunity to digitize the processing of commercial loans inside of banks. Banks had plenty of software vendors (including massive incumbents like FIS and Ellie Mae) but no one was paying attention to the commercial loan origination process.

Look under the hood of a company in any industry and you’ll find dozens of business processes that have yet to be productized or poorly served. These are ripe for a best-of-breed market-leading vertical solution.

To get a taste for what underserved problems look like in a specific vertical, check out Mike Droesch’s supply chain roadmap.

3. Unseat sleepy incumbents:

Existing market leaders have big advantages making it extremely difficult to unseat incumbents. In the auto industry, three 40+ year old software companies — CDK, R&R, and Cox — have chased away dozens of new entrants over the years and grown to over $100 billion in value.

However, time and time again, we’ve seen exceptional founders leverage a platform shift to unseat incumbents. This is often driven by a technology catalyst that gives new entrants an unfair advantage.

We saw our portfolio company Toast* pull this off in the restaurant point of sale (POS) market. Many thought this market would be forever dominated by NCR and Oracle. But Toast’s founders had three radical insights:

  • They could leverage Android hardware to build a better tablet-based experience for restaurant workers than the PC-based status quo;
  • They could use cloud delivery to constantly make their software better than the legacy on-premise incumbents;
  • By integrating payment processing and capturing payments revenue, they could sell their software at a much lower price point than incumbents and competitors.

With a vastly superior tablet-based product at a disruptive price point, Toast was able to take massive share from NCR/Oracle in less than a decade and build a $500+ million revenue business.

Unseating incumbents is difficult but with a product that is better or cheaper, new entrants can overcome the switching costs that give vertical incumbents their advantage. However, this is the toughest path to market leadership because it requires your new solution to be wildly cheaper or better (or both).