Diagonal Market Innovation

Rethinking Enterprise SaaS Development Strategies

For all new innovations, products, and services to start their journey bringing positive change about the world, they must find the right markets to address. Those markets are strategically chosen from a matrix of possibilities. This matrix, the breeding ground of all business opportunities, aligns all industries of vertical thought against all tools of horizontal productivity.

Popularized by Peter Thiel’s Zero-to-One, it long been considered that the best way to bring new solutions to the matrix of markets is to start by building for one vertical. After vertical dominance (product-market-fit or 0–1) has been established, companies can start to think about scaling horizontally across industries (1-N), building a suite of solutions connected to one another through business or engineering flywheels.

However, after decades of iteration upon this method the whole market is beginning to see saturation and need for a new type of innovation strategy. Industries looking for solutions to their problems need a countless number of tools to solve their problems and even tools to connect those tools to one another for seamless operation. They would like a horizontal solution that solves all their problems. But when those are found they only come from large companies that are fighting cultural backlash and anti-trust battles. Independent horizontal solutions are too expensive and difficult to get off the ground.

As an infrastructure engineer who believes in using root-cause analysis to find the fundamental problems plaguing our society, I once wrote about why horizontal solutions are worth investing our resources in any way. That was 6 years ago at the same time Zero-to-One was released. Since then, I’ve incubated 11 different startups of my own and Worked with just as many innovation teams at horizontal conglomerates. The perspectives have changed my stance from thinking we should be investing in horizontal solutions to a more inspired one thinking that there’s a new approach that solves the market's frustration with the solution landscape.

As Peter Thiel did, when most people lay out their market opportunities they do so as a data plot. They line out the two horizontal and vertical axis, marking where they may be able to address. Separated into rows and columns, they choose one off the other.

But if you look at the chart more closely, and the way they used to be represented before Zero-to-One’s release, it represents a matrix more closely than a data plot. So why are we thinking with a binary approach? This is not how you solve a matrix. To solve a matrix one uses a technique called linear algebra. This is the very technique that powers modern computing itself, the tool which almost every innovation we’re talking about utilizes. So why not use it to power a solution to business markets too?

Matrix solutions are found by multiplying across the diagonal. So when talking about innovations to the market opportunities, how do we go across the diagonal to bring quantitative value to vertical industries while unifying horizontal solutions into a seamless interface?

The solution came to me by visualizing the market strategy of a startup team who’s using their experience building some of today’s leading file formats during the dot-com era to re-engineer the digital advertising & e-commerce landscape from the cryptographic level.

At its lowest level, this means that the data about how effective an advertisement has been can be used by publishers to iterate upon their own content strategy. It also allows them to return a higher commission for clickthroughs and provide a more secure level of payment privacy with standardized checkout flows.

During the last generation of SaaS solutions, marketplaces took dominance in this approach. By building one go-to place for all customers and sellers to meet and find each other, they were able to connect the axes. However, marketplaces proved cumbersome to get off the ground and still required a niche vertical specialty to attract users. Because the users needed to come from both sides, their launch proved a daunting task with the need for large sales teams and thus ample initial investment. In many cases, the returns weren’t there for the top players in the field.

What I like about the example with 1o above though is how it removes that cumbersome layer from the marketplace model. By building a new advertising and e-commerce system from the bottom up, they’ve provided a solution based more around the data handling and checkout flow than around connecting publishers to stores — even if that’s the end value. Thus both publishers and stores can see a clear value proposition without any need to change their own workflows internally. They don’t need to open up a marketplace app and sift through various options. And they don’t have to take these options and manually build them back into their own platforms. It’s a seamless integration of current partners with dynamically deployed solutions.

By building in a diagonal way, connecting all axes seamlessly, a new approach to SaaS solutions can be designed with more wholesome marketing strategies. The result will be a business with all the benefits of building 0–1 and all the advantages of building 1-N, which will eliminate the current frustrations industries have with discoverability and compatibility.

I encourage more entrepreneurs and investors to think holistically about the matrix of markets they’re looking at with a given problem. When addressing the launch strategy, solve the matrix the same way you’d solve the backend algorithm challenges. Build a new type of service which serves all by connecting all into a unified solution.

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