Vertical vs. Horizontal: Lessons from Arch Systems’ Journey to Product-Market Fit
The horizontal platform approach seems irresistible: build once, sell to many markets. But in a recent episode of Category Visionaries, Andrew Scheuermann shared how Arch Systems found unprecedented success by doing the opposite – going deep into a single vertical.
The Horizontal Platform Trap
Arch Systems started as a modular IoT platform aimed at solving data collection across multiple industries. “We had this modular hardware solution that was kind of competing with Samsung,” Andrew explains. The vision was compelling: create a generic IoT platform that could serve any industry needing machine data.
But there was a fundamental problem. “Your customer is telling you, ‘yes, you’re doing the right thing,’ but we’re stuck industrial,” Andrew recalls. “Everybody talks about POC hell, proof of concept hell, where your big customer that is hard to understand tells you you’re doing something good and you’re just stuck in pilot mode and you can totally die.”
The Hidden Signal
During these struggling pilot programs, they noticed something crucial. “The end problem we’re trying to solve, we’re trying to get the data out of these machines, do analytics and then optimize X,” Andrew shares. While the horizontal platform wasn’t working, the underlying value proposition was strong – especially in manufacturing.
The Vertical Pivot
The decision to focus exclusively on manufacturing wasn’t just about picking a market – it was about fundamentally changing their approach. “When we finally got that focused on a vertical specific solution, we built the whole thing right,” Andrew explains. “We built the analytics and the intelligence and were able to start providing awesome optimizations inside of our customers.”
Why Manufacturing Won
The choice of manufacturing wasn’t random. Andrew reveals their systematic approach: “The part that was systematic was we did study kind of the market sizes across the board. Manufacturing was one of the absolute biggest markets. The inefficiency gaps that we had seen in these pilots were the largest by far.”
Their technical capabilities also aligned perfectly with manufacturing’s needs. “If we had picked like an irrigation system, there’s one or two pieces of it, but then that’s all there is. When you pick the factory is full of ten, 5100 different kinds of machines there.”
The Compound Benefits of Focus
Going vertical enabled them to build deeper, more valuable solutions. As Andrew explains, they developed what they call “cores” – combinations of machine connections and pre-built analytics. “Today we focus on surface mount technology and injection molding,” with plans to expand into “CNC machines… semiconductor, packaging, paint shops.”
This focused approach led to dramatic improvements in their sales cycle. “Just recently we got through Pilot with two multibillion manufacturers into recurring revenue deals in four months,” Andrew shares. The company went “from three years to about eight months on average as we’re starting to sell the motion.”
The Future of Vertical Expansion
Rather than returning to a horizontal approach, Arch Systems is doubling down on vertical depth. Their latest innovation, Action Manager, is “an intelligent system that helps automatically alert on the conditions happening in the factory, send it to the right people and lets you build these knowledge playbooks where the factory experts have a place to put all their knowledge.”
Key Lessons for B2B Founders
Arch Systems’ journey offers crucial insights for founders deciding between horizontal and vertical approaches:
- Listen to the market signal beneath failed pilots
- Choose verticals based on market size and inefficiency gaps
- Align technical capabilities with vertical-specific needs
- Build deeper solutions rather than broader platforms
- Use vertical success as a foundation for targeted expansion
Sometimes the path to larger success requires narrowing your focus. By going deep into manufacturing rather than wide across industries, Arch Systems found a way to build something truly valuable – and scalable.