Chapter 2: What Makes A Good Micro-SaaS Idea?

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Since I started blogging about Micro-SaaS, the overwhelmingly most common question is something like: “Store locators, hmm, seems like such a simple idea. How can I find an idea like that?”

I went into elaborate detail in this blog post about all the different ideas I worked on before Storemapper to emphasize that I don’t really know a straightforward method that works without failing. In fact, failure and trial and error seem to be essential parts of the process.

However with the benefit of hindsight, and from talking with other Micro-SaaS entrepreneurs, I do think there are certain elements to look for in a good Micro-SaaS idea.

The Meat Grinder

In Chapter 3 we’ll dig more into methods for finding business ideas. But first I want to turn the entire premise on its head. It is far more important that you develop a fast and effective way to reject business ideas than finding ways to come up with new ideas.

I call this approach The Meat Grinder and into it in further detail in this post. The Meat Grinder is a quick way to determine that a business idea is in fact a bad one for Micro-SaaS. Every section on what makes a good idea, can also be inverted into how to identify a bad business idea. A big part of the rest of this book is about refining your Meat Grinder process. We’ll dig deep into building a minimum viable product, customer acquisition strategies and pricing and business economics so that you’ll be better equipped to quickly assess ideas on each of the Meat Grinder questions. If you are motivated to build your own business it is likely that you will come up with lots of potential ideas. The trick is to figure out which ones won’t work and move and the worst, and most common, pitfall is to get hung up on one flawed idea indefinitely. The Meat Grinder is a series of tests, based on what makes a good Micro-SaaS business idea, that allows you throw out ideas, a critical part of the process of coming up with an idea that is a good fit for you. As you read through each section below think of how you might use it to identify weaknesses in some of your current SaaS ideas.

What Makes a Good Micro-SaaS Idea

I’m not going to lie. Finding a good Micro-SaaS idea is hard. Micro-SaaS is a niche within a niche. It’s an amazing business model when you can make it work. But it’s hard enough to pull off running an entire SaaS business by yourself with a mediocre idea. So it is worth spending a good deal of time carefully considering business ideas. Getting even just a few of these criteria wrong can turn into a huge waste of time and money.

Be 5x better than customers currently pay

There are two components to this rule. First, your potential customers should already be spending money on the pain point your product solves. I’ve met a lot of would-be entrepreneurs with really ingenious product ideas, but their target customers are al- ready solving the problem for free with spreadsheets, email, whiteboards or nothing. Never underestimate how hard it is to get a business to start spending money on something they previously were not spending money on. Even for a small business the friction of finding the first contact, THEN connecting with the manager who decides the budget, THEN waiting for internal approval on in the budget request, can add up to enough to kill your customer acquisition funnel. It is much easier to sell a product in a category where the business already has a budget allocated.

The second is that you must be 5x cheaper or 5x better. You won’t have the time or resources to do the high touch sales to walk a customer through the incremental value of a 25% improvement. Your product must be obviously, hilariously cheaper or better because you will have a hard enough time just getting the right customers to your landing page. In the case of Storemapper, our customers needed a store locator and their alternative was paying at least $1,000 for a developer to build one from scratch. When I launched the product it was $5/month. Even with later price increases, Storemapper is still massively cheaper and better compared to building one from scratch. This is the beauty of going after a true niche. It can be surprising how often businesses, operating in segments too small for billion-dollar startups to go after, are making do with (and paying for) some truly awful, 15 year old garbage software that you can come in and radically improve upon.

All this adds to up to your conversion rate from free trial to paying customer. If your target market is already spending money and you are 5x better/cheaper a very high percentage of customers will stick around after their trial. I’ve seen estimates that for large VC-funded SaaS companies the rate of conversion from free trial to paying customer is around 5-15%. Storemapper’s has consistently been above 50% which is much closer to what you need to succeed with a Micro-SaaS.

Other players in the field

In Micro-SaaS you do not want to follow the Silicon Valley “Zero To One” theory of creating something completely and totally new. Existing competitors serving the same underlying demand are actually a very good sign. Yes, if you have an idea and there are ten nearly identical products already then you should probably move on. But if you search and you can’t find a single product or service addressing a similar need, it is probably a sign that there is not much of a market.

The best scenario is finding consultants who serve the market inefficiently and expensively or customers currently suffering with horribly out-dated software. Another variation is a successful product that is pigeon-holed. Maybe someone built a successful Excel add-on or Salesforce tool that is tightly integrated with that platform. If you see an opportunity to serve a similar need on web or iOS or Slack you could be on the right track.

A defined group that needs your product

This one is so critical. I’ve met many wantrepreneurs stuck on a product idea of generally improving productivity or team management or workflows. These products could theoretically be used by anybody but in reality get used by nobody. It is impossible to interact with and market to “any modern knowledge worker.” It’s very important that your Micro-SaaS be built for a defined audience so you can narrow the marketing effort and focus the product features. Getting initial feedback before you build the product and bringing on your first customers is much easier when you are targeting a defined group like real estate agents, accountants, travel agencies, etc.

One of the best examples I’ve seen of this is a Micro-SaaS dedicated entirely to companies that do window washing for large industrial buildings. The founder, a freelance programmer, was contacted by a single window-washing company who needed an app to help schedule their trucks and accept payments on-site from customers. They couldn’t afford a full custom build but offered to introduce the founder to other customers and a forum dedicated to window cleaning businesses (yes, there apparently is such a thing). He posted a question “What features would you want from the perfect window cleaning software?” and received hundreds of replies. A year later he is earning a full-time income from his window cleaner Micro-SaaS and is hiring his first employee.

It’s also important to think about how easy is it to actually find this target market. If your target market is lawyers, great, Google them and go to their offices. A window washer Micro-SaaS will have an easy time finding new customers since window cleaning businesses tend to explicitly list their contact info in the “window cleaning” category of every Yelp, Yellow Pages and other online business directories. If your target market is traveling vacuum salesmen, how are you going to actually find them?

Lastly it’s worth considering whether you actually like interacting with the target market. Lawyers may be easy to find, but if you discover that you actually hate talking to lawyers you might want to bail before you commit to spending at 20-60 hours per week with them for the next several years.

Have at least one channel for the first 25 and 250 customers

Once you have a defined group that needs the product you should be able to quickly come up with at least one way you could get the first 25 customers for free. For Storemapper this was a combination of my existing freelance clients (the first 5 customers) and trawling the Shopify discussion boards and inviting new customers one by one. Then you need to up the scale and think about at least one way to get 250 customers. The point here is to think about whether these customers congregate around any particular places, directories, locations, websites. Do they hang out anywhere and identify themselves as the type of person who should buy your product. Ultimately you’ll need more than one channel to make the business successful. But if you can’t think of even one, and you would be surprised how often people cannot come up with one when they pitch me their idea, then you should toss the idea in the meat grinder.

Line of site to a Minimum Viable Product that you can build

I won’t spend too much time on what makes a good Minimum Viable Product (MVP). If you’re going to build a Micro-SaaS then read The Lean Startup and spend a few hours reading blog posts about the topic as it has been extensively covered. But my point is that you… as in YOU… should have line of sight to building an MVP. If step one of actually building involves “find a developer” or “spend $10k to hire someone to…” then you should move on. Anyone can think of a fantastic business idea that starts with “First I’ll get a developer to build a facial recognition algorithm and some machine learning…” but it is never going to happen.

If you can’t code, there are lots of clever ways to launch an MVP without coding. And if you can code, then add the additional constraint of building it in a month only on weekends. If you can’t sketch out the basic process of building something, that you could charge your customers money for then it’s probably not a good Micro-SaaS idea.

And I’m talking about an MVP that actually works. Ditch the viral landing pages, the interactive prototypes and pre-product video demos. The MVP can be crappy and lacking a lot of features, but it should actually do what it says on the label. Even if you find a beautifully underserved niche and a cost-center that every company spends $1,000s on, if the MVP is going to take six months of coding to launch, you haven’t found a Micro-SaaS idea. You need a team or you need funding or you need a new idea. Because if you sweat it out for six months building that product and there was a flaw that kills the product you’re going to go nuts and never take another swing at building another idea. You have to build in resiliency for the inevitably high likelihood that your idea actually still sucks. Build and launch fast.

Do you have founder/product fit

This idea has been covered from several angles because it is important. Chris Dixon calls it founder/market fit. Dan Norris calls it enjoyable daily tasks. The point is that you shouldn’t consider business idea in a vacuum. I have discarded business ideas that, based on the criteria above, I think are great but aren’t the right fit for me. I just don’t want to devote several years of my life to working on that problem. It’s hard to reject a business idea for this reason, particularly when you’re still looking for the first one, but it is the most important criteria for success by far.

Tactical Suggestions

I tried to keep the above sections closer to timeless principles rather than explicit recommendations of good ideas that might go stale but I’ll briefly wade into some more specific recommendations here with the caveat that these are much less reliable and possibly out of date.

Focus on Automation

A great number of the successful Micro-SaaS businesses I have encountered are products that have an initial setup period but then continue to provide value to the customer on an ongoing automated basis. Storemapper works this way. Customers do some initial installation and customization and then their store locator continues to just work, driving traffic and sales to their retail locations. I would look much harder at automation based businesses right now rather than a tool that requires your customer to login every day and use it.

Sell to growing markets

This is may be obvious but you want your target market to be a growth sector not one in decline. Look for ideas that sell to ecommerce shops rather than stores in a shopping mall. Build SaaS for Uber drivers before traditional taxi drivers. Build for freelance designers rather than corporate accountants. Make sure your total addressable market is going in the right direction.

Small online businesses are the sweet spot

Building a product for large businesses can be annoyingly complex with multiple layers of approval for billing and never-ending stream of requests for customizations. Freelancers or individuals can move quickly because you only have to deal with one customer (who also holds the credit card you need) but they can be too budget conscious and price sensitive. Small business of 3-10 people, preferably working in something online like ecommerce, publishing or SaaS themselves are the ideal Micro-SaaS customers.

Next Chapter 3: Finding Micro-SaaS Ideas >>