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Scaling Vertically: How Lean Teams Are Hitting $10M ARR in Vertical SaaS

Weekly #137 | Micro-Empire Lessons from Garry Tan of Y-Combinator

In partnership with

Introduction

A new wave of startups — especially from China (e.g. Xiaohongshu, Deepseek) — is proving that you don’t need a massive team to build a massive business. Garry Tan — President & CEO at famed US accelerator, Y-Combinator — recently highlighted this shift, noting that vertical SaaS companies are scaling to $10M in Annual Recurring Revenue (ARR) with fewer than 10 people.

This is not something to ignore—it’s a fundamental change to how software companies will operate now and into the future.

At Micro Empires, we’ve always believed in staying super lean while thinking big. Especially in this AI era. Now, Vertical SaaS companies are exemplifying this mindset, focusing on hyper niche markets, leveraging automation, and prioritizing efficiency over headcount. Let’s break down why this model is working, how AI companies are pulling it off, and what it means for the future of software businesses in general.

The Rise of Vertical SaaS

Traditional SaaS companies build broad, horizontal solutions—think Salesforce or Microsoft Office. Vertical SaaS, on the other hand, targets specific industries with tailored software. Examples include:

  • Veeva Systems (pharmaceutical and life sciences)

  • Procore (construction management)

  • Toast (restaurant management)

By going deep into one industry, these companies create highly specialized solutions that are harder to replace. The result? Higher customer retention, better margins, and faster paths to profitability.

The numbers back it up. Valuation multiples for vertical SaaS are often higher than their horizontal counterparts, with investors favoring their stickiness and efficiency.

Efficiency Over Scale: The Lean Startup Model

Startups used to measure success by team size. Now, they measure it by revenue per employee. The lean startup model emphasizes:

  • Focusing on what matters – Avoiding bloated teams and unnecessary complexity.

  • Iterating quickly – Using customer feedback to refine the product rather than guessing.

  • Automating everything possible – Leveraging AI, no-code tools, and streamlined operations.

Google, Facebook, and Amazon all started lean, with small teams iterating rapidly. Today’s most efficient SaaS companies are following the same playbook.

Garry Tan’s Vision: The Exponential Growth of Vertical SaaS

Garry Tan summed up this shift in a single statement:

He’s pointing out that we’re in the early days of a massive wave. Companies are reaching $10M ARR with fewer than 10 people — exactly what we’ve been predicting with “micro empires.” The next step? Scaling from $100M to $1B ARR while staying this lean.

This efficiency is possible because software scales in ways traditional businesses can’t. When paired with AI, automation, and a niche focus, even smaller teams can dominate an entire industry. We’re seeing this even with DeepSeek, China’s latest AI competitor to ChatGPT (OpenAI) from the US, who apparently have just 14 team members:

Just for comparison, OpenAI has around 2,000 employees.

Case Studies: Lean Teams, Big Revenue

Several vertical SaaS companies have already hit the $10M+ ARR mark with tiny teams:

  • Superhuman – Focused on high-performance email, achieving millions in revenue with a small team.

  • Shopmonkey – A vertical SaaS for auto repair shops, growing quickly with a laser focus.

  • SaaS startups from Bain Capital Ventures’ list – Many are proving that industry focus beats broad solutions.

These companies use the same playbook: automation, deep customer understanding, and relentless efficiency.

Strategies for Success

If you want to build a lean SaaS business that scales, focus on:

✅ AI & Automation – Reduce manual work wherever possible.
✅ Super Niche Markets – Solve one industry’s problems better than anyone else.
✅ Customer Feedback Loops – Improve constantly based on real-world usage.
✅ Efficient Pricing Models – Align value with revenue, maximizing customer retention.

The biggest advantage of vertical SaaS? Once a company dominates its niche, competitors struggle to break in.

Challenges and Solutions

Running a lean SaaS startup isn’t easy. Common challenges include:

🚧 Limited Resources – With a small team, every decision matters.
💰 Scaling Without Overhead – Growing revenue without ballooning costs.
📈 Market Competition – Larger players may try to enter your niche.

Solutions? Keep product development tight, automate aggressively, and ensure your product becomes mission-critical for your customers.

The Future of Vertical SaaS

Where is this trend headed?

📊 More startups will adopt the model – The success of lean teams will inspire a new generation.
📈 More IPOs from lean SaaS companies – As Garry Tan predicts, some will scale from $100M to $1B ARR with teams < 10
🤖 AI will supercharge efficiency – Automating more work will allow even smaller teams to do more.

The combination of software, AI, and hyper niche market focus is changing the game.

Conclusion

The days of needing massive teams to build successful software companies are over. The future belongs to lean, high-impact startups that focus deeply on specific markets, use technology to maximize efficiency, and scale revenue without scaling headcount.

At Micro Empires, we champion this approach. If you’re building a SaaS business, now is the time to think vertically, stay lean, and grow smart.

🚀 Ready to explore vertical SaaS? Let’s build the next $10M ARR company—without the bloat.

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