Everyone Is Looking in the Same Place
In any current startup scene that one could open up, the same types of companies would always emerge: those offering AI tools, developer tools, SaaS for SaaS, and no-code solutions. All these are profitable markets, and they are also the most crowded spaces in the entire world of startups.
Ironically enough, whereas thousands of entrepreneurs vie for recognition within the hyped categories, statistics show that there are whole segments of industries raking in revenue but without nearly the amount of competition. It’s those markets that no one talks about at hackathons and on social media platforms like Twitter that intrigue us.
Six categories that illustrate why the reality of revenue is much different from what the hype cycle portrays.
1. Legal Tech: High Revenue, High Switching Costs
Most founders who think about legal technology assume that this industry revolves around enterprise-level contracts. However, the statistics tell a different story.
Legal Technology Startups have some of the largest average MRR figures amongst all the sectors. The reason for that is that the nature of this particular sector is such that lawyers bill at several hundred dollars per hour, which means that anything that can help save them time has an easy-to-justify ROI.
It is especially interesting for startup companies because of the existence of switching costs when the law firm decides to use the technology product, especially concerning document management, contract formation, and regulatory issues. The legal software business has significantly lower rates of customer turnover in comparison with similar businesses in marketing and social media.
Where the gaps exist: Solo practitioners and small law firms. Legal tech applications tend to be directed at the needs of BigLaw and medium-sized firms. Yet solo lawyers and smaller firms have the same regulatory standards as the larger organizations, but much less in terms of technological assistance. Law applications by specialty area are particularly lacking.
Level of competition: Medium in business, low in small business and practice-oriented solutions.
2. Recruiting and HR Tech: Recurring Pain, Recurring Revenue
The recruiting/Human Resources category (/recruiting and HR ideas) is probably one of the most reliably profitable areas in the whole set of startups. Businesses will always be hiring, onboarding, and dealing with people management issues.
What the data above tells us is that targeted recruitment tools are achieving MRR milestones with relatively lean teams compared to HR software suites that provide a full set of features across the board. Tools that solve one pain point in the process outperform all-in-one ATS alternatives.
It is quite logical from an economic standpoint. One poor hiring decision will cost the business tens of thousands of dollars. One single solution that lowers the rate of poor hires by 10 percent can be a huge return on investment. It becomes much easier to sell when one sells insurance against costly mistakes.
Gaps that exist: Recruitment based on verticals. Recruiting for a nurse versus recruiting for a software engineer is two entirely separate things, but there aren't any tools out there that cater specifically to industries like health care, construction, hospitality, and logistics.
Competition intensity: High for generic ATS software, but low for niche recruitment tools.
3. Real Estate Technology: Big Transactions, Willingness to Pay
The real estate technology industry is quietly delivering some impressive revenue figures. The sector enjoys an economic advantage whereby, considering that deals run into hundreds of thousands of dollars, any form of optimization justifies expenditure on software.
Real estate technology startups have demonstrated impressive MRR numbers for products that aid in property management, transactions, and market analytics. It appears that the industry still has room to grow, as evidenced by its healthy growth rate.
In addition to this, there are enough sub-sectors in real estate that it allows companies to provide very specialized solutions. Short-term property management is not the same issue as property management of commercial real estate; residential transaction coordination is not the same as industrial leasing.
Where the holes exist: Agent technology for independent agents and agents working through small real estate agencies. PropTech solutions are largely directed at big firms and investors. Independent agents, who account for a huge chunk of the real estate agent market, are using patchwork stacks of spreadsheets, general CRMs, and paper. There is an opportunity to provide them with purpose-built software at affordable prices.
Level of competition: Moderate in general, low in specialized tools.
4. IoT and Hardware Management: Boring Infrastructure, Serious Revenue
IoT and hardware could well be the most underreported sector in the entire database. It does not show up in any startup listicles or trends reports. Yet the money figures indicate that it should.
The more the infrastructure becomes enabled, via the networking of manufacturing equipment, business climate control, agriculture monitoring, and transport fleets, the greater the need will be for software capable of managing all these resources, becoming correspondingly greater. Here we have software for infrastructure which is the stickiest of any type, since once you get them on the hardware using your software, switching is costly.
The IoT management platforms show consistent above average MRR while keeping churn rate below average, according to the revenue analysis. These types of platforms get their clients from the physical industries, including manufacturing, agriculture, logistics, and facilities management, whereby the operation cost is much higher than the software cost, hence not price sensitive like others.
Gaps: Industry-specific IoT dashboards. Although most IoT platforms are horizontal and can manage any device, a greenhouse manager would require an entirely different dashboard from that used by a fleet operator. Purpose-built industry-specific monitoring tools have huge potential.
Level of competition: Low for specialized vertical solutions. The technical barrier to entry – knowledge of both hardware and software – discourages competition.
5. Customer Support Tools: Perpetual Demand
Customer support software is one of those things that don’t get much attention like CRM or marketing automation software, yet revenue trends are quite intriguing. These software products exhibit one of the most stable revenue growth patterns — not rocket science but certainly solid.
Each firm which markets to consumers requires a system for support. With growth comes a proportional increase in the requirements for support. This establishes an organic revenue expansion model whereby the customer pays increasingly more without the vendor selling any additional product.
This category is also being aided by changes in consumer expectations. Response times, channel options, and customization needs have all risen. Companies who had been handling customer support via shared email accounts have been finding themselves forced into better tool solutions.
Where the gaps lie: Industry-tailored support tools. The helpdesk system used by a healthcare organization to answer patients' queries would need to comply with different laws, have a different process flow, and integrate differently compared to the helpdesk used by an e-commerce company. Tailored helpdesk support systems are not widespread yet.
Level of competition: High among general-purpose helpdesks, low among vertical helpdesks.
6. Travel Technology: Post-Pandemic Recovery With Modern Expectations
There has been a revival of this sector ever since the year 2020, and there are some start-ups in this sector which have shown tremendous growth. What makes this particular sector interesting at present is the mismatch between what customers expect from technology in their current state versus the actual technology that is being employed in the travel sector, dating back a few decades.
The information from revenues of travel tech startups that have been validated demonstrates an industry growing actively. Those travel tech companies which are working successfully do not try to fight with Booking.com or Expedia. They develop software for managing tours and activities, as well as for other travel businesses that require this software.
The travel industry is large and highly fragmented. There are millions of tour operators, activities providers, and independent hotels across the world, the majority of which use legacy systems or none at all. The market opportunity for B2B travel technology is huge and continuously expanding.
What’s lacking: Tools for managing operations for specialized travelers. Travel agencies for adventure tourism, gourmet travel, health spas – each one has its own requirements for booking and scheduling that general purpose travel booking systems do not accommodate very well. Specialized tools for such niches can charge a premium price due to lack of good alternatives.
Level of competition: Moderate within general travel technologies; Low for niche operator software.
What These Niches Have in Common
Looking at these six categories together, several shared traits emerge:
Very willing to pay. All categories represent companies for which the cost of the issue is much higher than the cost of the remedy. Liability issues, poor hires, mismanaged properties, broken equipment – these are all costly issues.
Low competition among founders. Since these trends are not emerging on social media, there are fewer founders working in these sectors. The market opportunity-to-competition ratio is much higher compared to AI tools and developer tooling.
Structural stickiness. The software tools fit into business processes. When implemented, changing becomes expensive. This leads to reduced churn and increased predictability of income.
Domain expertise as a moat. Developing for lawyers, recruiters, or IoT practitioners demands domain knowledge. This acts as a barrier to entry for generalist “I will code up an app on the weekend” types of developers.
How to Explore These Opportunities
If you find that any of these categories interest you, then go ahead and conduct further research. You can view the income numbers associated with these categories and see what startup businesses have been created along with the income they generate. You can ask questions about the specific subcategory you have in mind, as well as other information related to the business.
And the bottom line? Listen to the numbers, not the hype. The most lucrative areas will be those no one else is discussing at the event. This is not a danger signal. On the contrary, it is a huge benefit.