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

<< Back to Chapter 1: What is Micro-SaaS and Why Should You Read This?

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 >>

Chapter 1: What Is Micro-SaaS & Why Should You Read This

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Micro-SaaS is a term that I use to describe my business, Storemapper, a simple app that helps merchants add a store locator to their website. If you’re reading this book you likely know that SaaS means Software as a Service.

To a programmer the key difference between SaaS and other software is that the code is hosted on a server in the cloud, rather than installed on your computer. But in reality the biggest difference is in the business model: customers pay monthly or annually for continued access, as opposed to a one-off purchase, like back when you bought MS Office 2000 in a plastic-wrapped cardboard box. The software is a service, rather than a thing they buy once.

This is a huge shift for reasons we will dig into later.

And of course “micro” just means small. A SaaS business targeting a niche market, run by one person or a small team, with small costs, a narrow focus, a small but dedicated user base and no outside funding. Hence, Micro-SaaS.

This book is about my experience building and running a Micro-SaaS business. I won’t claim to be a world expert. I’ve built exactly one successful Micro-SaaS business, with a slew of other failed businesses under my belt. Nor will I make any guarantees that anything I have done is replicable. But I think a Micro-SaaS business is possibly the most powerful lifestyle business model out there right now. In this book I’ve tried to distill some of the things I’ve done right and the many things I’ve done horribly wrong into some more generalized principles. I probably didn’t invent a single one of these principles and in many cases they were blatantly stolen from writers and entrepreneurs who’ve been around the block several times. Where possible I’ll link to the people and resources that were tremendously helpful to me.

Why Would You Want a Micro-SaaS Business?

This is the standard “Who should read this” section of the book. I’ll assume that you want to build some kind of business. So specifically why SaaS relative to other businesses like consulting, online courses, mobile apps, ebooks or a food truck.

Warning: below are some buzzwords like lifestyle design and digital nomad that have (rightly) developed some groan-worthy connotations. I’m using them here simply to avoid re-defining the whole lexicon from scratch. Stay with me.

Owning a Craft

One book that had a huge impact on my thinking is Shop Class as Soul Craft. The author leaves his well-respected white collar think tank job for a life as a motorcycle mechanic. The book constructs the very compelling ethical and philosophical argument that, in a world filled knowledge workers obsessed with abstract career ladder-climbing, the life of an artisan of practicing and refining a craft can be as purposeful and rewarding a life, if not more so. His craft is fixing motorcycles, but the idea is more generalizable and can apply to software. People have problems, the artisan solves them. People pay for it and everybody is happier than they were before.

If you’ve spent a career as just one small component in a vast Rube Goldberg machine, it can be very rewarding, bordering on glee, to build a product yourself and see people get immediate value out of it. The Micro in Micro-SaaS, running the entire product yourself or with a small team, affords the opportunity to see the fruits of your labors directly delivered. Your customers arrive, behind schedule, stressed and with too many things on their plate. You  remove one of those things from their plate, in exchange for a reasonable sum of money.

I find the process very fulfilling. Taking your craft seriously shows through to your customers. I regularly get unsolicited emails from customers who found the experience of using the app so pleasant they decide to write me a thank you note – and these folks are the ones paying me money!

Location Independence

I absolutely love to travel. I didn’t get my first passport until I was 20 but it has been one of my top priorities ever since. A huge part of why I invested the time and energy to build a Micro-SaaS business was a burning desire to have a business that I could work on remotely while traveling.

Before 2011 I knew literally nothing about coding. I never took a coding class when I was kid and never mucked around with HTML on geocities or angelfire. I dove in head first because I wanted to build a software company and I couldn’t convince anybody to build an app for me for equity in my non-existent company (I tried and failed for over a year). Writing code for a living is the most powerful tool in the lifestyle design toolkit because it is completely, 100% location-independent.

I started writing this book from Chiang Mai, Thailand, procrastinated on it through much of Southeast Asia; picked it back up for a bit in Budapest and Cape Town and wrote a bit more in Bali, did some editing in Oaxaca and will finish it up in Barcelona. I have no plans and can travel wherever I want in the world on a whim. In the past few years I’ve spent at least a month in Barcelona, Cusco, Buenos Aires, Bali, Tonsai Beach in Thailand, New York City, San Francisco, Washington DC, Budapest, New Zealand, Japan, South Africa and counting.

You can certainly do things like freelance consulting, or work for a startup that allows remote work, and that can be a really great option, but it isn’t the same. In the past few months I spent nearly two full weeks completely offline hiking Kilimanjaro and going on Safari in Tanzania. My girlfriend and I did a 2 week road trip across South Africa, two weeks diving in Fiji and a week rock climbing in Mexico. I’ve tried doing this kind of thing while managing client work (I once did a conference call from the cafe at Iguazu Falls, Argentina) and it’s possible but very stressful. With a Micro-SaaS business up and running at scale I’m able to really travel and disconnect and when I come back, the business is still basically fine without me.

Time Leverage: The Magic of Recurring Revenue

You can get some of the above benefits of location independence and owning a craft from any remote software business but there’s something special about SaaS. Recurring revenue is unequivocally the most powerful revenue model in the world today. Evergreen content, ebooks, drop-shipping, affiliate deals, AdSense, ecommerce, all seem incredibly risky compared to knowing that the vast majority of the customers that paid you last month, will pay you the same amount again the next month and very likely the month after. Once recurring revenue reaches a comfortable level, that predictability allows you the flexibility to start spending less and less time on your Micro-SaaS while still making the same or more money. I doubt it’s possible to get it down to zero (the mythical “passive income”), but it’s certainly within reach to make as much money as a full-time salary on 15, 10 or even FOUR (wink wink) hours a week. SaaS can be a business that not only yields money, but starts to give you back your time. Of course you don’t have to spend less time on it but having that option gives you much more control over the time vs money equation in your life.

Here are a few things I was able to do over the last few years thanks to my Micro-SaaS:

  • Freelance 20-30 hours per week for several periods on top of running the business solo, which combined with my SaaS income allowed me to make twice as much money in a month as I ever had before.
  • Pay down nearly $60,000 in debt (from a previous failed startup) in less than two years.
  • Travel the world for a year with my girlfriend. Rather burning through savings I actually netted a good profit on the year despite spending months in areas with virtually no internet connection.
  • Move back to the US and devote the majority of my working week to projects that I find interesting, like writing this ebook, without having to worry whether they would generate any revenue.

Building a Financial Launchpad

Venture backed startups still get all the attention these days while bootstrapped and profitable “lifestyle businesses” are deemed unworthy of unambitious and talented people. But if you dig back in the histories of really successful founders, you very often find they had already secured a high level of financial security before they ever built a world-changing risky startup. Stories of founders truly putting their entire financial future on the line before coming out on top will achieve almost mythical status, but they are by far the exception to the rule. Most world-changing founders had a more boring traditional business success first, or more commonly came from wealthy families who could backstop their risk.

During the same period of my life that I built my Micro-SaaS, I bootstrapped, raised angel funding for, and ultimately was forced to close a venture-scale startup. It was the most stressful thing I have ever done and it did damage to almost every other aspect of my life: relationships, health, sanity, bank account. I really did put my entire financial future on the line, getting enormously in debt and without a backup plan.

I doubt that will be my last attempt at a legacy-building company, but I have learned my lesson. The biggest problem by far in my first attempt was that the moment I quit my job, my income evaporated. I was trying to run a startup while drawing down on my meager savings and frantically trying to raise more funding just to pay for rent and groceries on top of business expenses.

Now that I own a Micro-SaaS business, I can work on a new startup without drawing a paycheck indefinitely and it is absolutely the route I would recommend to any aspiring startup founder in a similar financial situation. You can also replace “startup” with anything ambitious and risky. A Micro-SaaS business could fund you while you spend six month writing a novel or trying to make it big in the acting or music business. One Micro-SaaS founder I know used it to pay the bills while starting a travel publishing business.

If you are interested in starting a big risky ambitious project some day, Micro-SaaS could be the perfect launchpad.

Who is the author and why should you care?

Before we get to the meat of the book, one more brief digression – Who am I and why should you care?

I’m Tyler Tringas. In a former life I was an Economics major and a consultant for investors in cleantech (solar, wind, electric vehicles, etc). In 2011 I quit my job to build a cleantech software startup. It took a long time to get traction, we launched, raised some money, and in early 2014, we shut it down. There’s a whole epic story there in itself, but through the same period of time I taught myself to code, built a consulting and software development practice for ecommerce startups, and built a ton of side projects. One of those, Storemapper, was a nice little Micro-SaaS business that did well and now generates over $250,000 in annual recurring revenue. I started blogging very transparently about my experience with Storemapper and it turned out owning a Micro-SaaS product was an aspirational goal of a lot of people. So I wrote this ebook. I hope you get some value from it.

 Next: Chapter 2 What Makes a Good Micro-SaaS Idea? >>