Everyone wants to create the next Facebook, Slack, Zoom, or other big brands. They want to appear on Techcrunch and be labeled the next big thing.
Here is the reality… for every one of those well-known startups, there are 100 or maybe 1000 other companies you have never heard of.
I founded and sold a company you have never heard of for $150 million. Very few people in Kansas City had even heard of us, and we had 300 employees while doing tens of millions in annual revenue.
We never raised any money. There is no PR about our fundraising. We were off the radar, quietly reshaping an entire industry.
The best startups are doing the same. They are flying under the radar doing critical boring stuff nobody has ever heard of.
What’s a boring startup?
I define boring startups as companies working on things that are not trendy or chasing any current hype cycles. They usually solve real-world problems, and you have never heard of them. They are helping with logistics, supply chain, enterprise, or vertical-specific software. They are building solutions that are mission-critical to their customers.
Boring software companies are not as flashy. They don’t get all the press. They don’t charge $20 a month for some cute marketing tool. They charge more money for an industry-specific or enterprise solution because they provide more value to their customers. The companies tend to be more profitable and require less capital.
A lot of boring software companies are vertical-specific. Unless you work in that vertical, you have never heard of them.
Vertical vs Cross Vertical Startups
One of the biggest challenges for startup founders is focusing on a niche. When you first start, you want to explore lots of potential customers. You aren’t sure which customers are the best fit for your solution. At some point, though, you have to decide if you will focus on a very specific niche or if your product is designed for all types of companies.
Trying to build a product that anyone can use is often a mistake. When everyone is your customer, nobody is your customer. Although, you can also focus based on geography, company sizes, and other criteria. The biggest decision is to focus on a specific vertical or all verticals.
A vertical is another way of saying a specific industry. My first company, VinSolutions, was a CRM system for car dealerships. Today, they are the largest CRM provider in the industry, with something like 7,000 customers. Our product was full of features that were only relevant to car dealerships. Using our product for any other industry would not have made sense.
If you think of CRM, you probably think of solutions like Salesforce or Hubspot. They are examples of cross-vertical or horizontal solutions. They are more generic solutions designed for any industry.
Car dealers would have never used Salesforce or Hubspot. It wouldn’t have made any sense. Plus, the car dealer-specific ones had industry-specific integrations with the automotive manufacturers.
There are pros and cons to creating vertical vs. non-vertical startups. I would argue it is likely easier to do a vertical-specific solution. You can build something very specific for an industry. There is likely less competition, and you can create unique solutions only relevant to that industry.
The company I work at now does digital marketing. Doing that across all verticals sounds highly competitive. However, we only focus on home services like HVAC, electrical, and plumbing. We built unique solutions only for them. For that reason, we are the top vendor in the industry. We crush the cross-vertical solutions that try to compete.
The vertical focus will always beat cross-vertical. Vertical startups are more boring, which I prefer!
Creating glue
Another example of boring software companies aligns with the famous Brad Feld and one of his investment themes. He likes to invest in companies that are what refers to as “glue.” He even has a conference called GlueCon!
He defines glue as companies that provide the infrastructure and integrations that many other companies and technologies rely on.
Examples of glue companies are Amazon Web Services, Twilio, Akamai, Salesforce, and DocuSign. Also, software for cloud hosting, Kubernetes, and other infrastructure software.
Once a company uses these companies, it is hard to get rid of them. They are key infrastructure for companies, and their “glue” help hold things together for companies.
Building for the enterprise
Another example of boring software is building enterprise-specific solutions. By enterprise, I am referring to selling to medium to large corporations. Especially the Fortune 500.
It is hard to sell to enterprise companies. The sales cycles are long, and vendor approval can be painful. However, they are always looking to optimize their operations and are willing to pay top dollar. They are especially concerned about security issues and will pay extra for companies that cater to their needs.
Everything about selling to large enterprises is also boring! Love it!
I recently interviewed a couple guests on my podcast, Startup Hustle, that are perfect examples.
Island
Have you heard of the company Island? Probably not. They built a web browser focused on solving security issues for larger enterprises. Essential things like viruses, spyware, email phishing attacks, VPNs, etc. They have raised hundreds of millions of dollars and, I presume, are worth multiple billions.
Ironclad
How about Ironclad? Probably not. They built software to help companies create and manage all of their contracts. Large enterprises have lots of vendor contracts, sales contracts, etc. They have also raised hundreds of millions of dollars and are valued at over $3 billion.
Service based companies
When people think of startups, they usually think of SaaS companies. I have also been involved in two companies that were service-based. The digital marketing company that I currently work with is a service-based company. We are effectively a digital marketing agency that also provides a software solution.
About 5 years ago, I started a software development service company in the Philippines. I didn’t trust, or like how most outsourcing firms worked, so I started my own company to help my other company, a SaaS company. Full Scale now has 300 employees helping other companies build software. It’s a boring business, but we provide a mission-critical service to our customers!
Service companies are more labor intensive. They are harder to scale but also much easier to start. They require less funding and are much easier to make profitable.
Service companies are also pretty boring.
Boring doesn’t go out of fashion
Boring companies don’t go out of style. Island and Ironclad are perfect examples of that. Solving web browser security issues and dealing with endless contracts are problems that aren’t going away, especially for enterprise customers.
Now compare that to all the hundreds of AI companies that have popped up in the last 3 months. Some of them will make it, and some of them won’t. The hype of AI will fade away eventually.
Most boring companies provide critical infrastructure and vertical-specific solutions. Products that are deeply entrenched and hard to replace at most companies.
How eager would you be to change if someone told you they could provide you with a better accounting or phone system?
I bet your answer was NO WAY. Certain products are critical to a business and hard to change. Those are the best products to build. They are boring with a long lifetime of customer value.
It pays to be boring
Boring startups aren’t flashy or trendy. However, many of them are the plumbing that keeps most companies running daily. They are the mission-critical solutions that, if they go down, the whole business is out of business until it comes back online.
It is way easier to build a boring vertical-specific software company than to try to build the future Metaverse. Good luck, Zuck!
If you are considering starting your own software company, I highly recommend picking something boring. Service-based businesses are also a fantastic choice for a first-time entrepreneur because they typically require less capital.
It pays well to create boring technology that everyone needs.
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