In a maturing SaaS market, new business models are being devised to get a foothold and carve out ownership of an area of the market.
We’ve seen SaaS “unbundling”, where a core service is offered as an API and a small set of tools, with examples such as Clearbit. The large, full-featured SaaS have fallen out of favor with some because these smaller companies can offer a service more focused on a particular set of needs.
In conjunction with this, there is also a trend of building a “micros SaaS”, which we’re exploring in this article. What does this mean and what is the attraction to building them?
What is a micro SaaS?
As near as we can work out, looking back over articles from the last few years, the term “micro SaaS” was coined at least a decade ago, but is most often discussed in work by Tyler Tringas, whose own company Storemapper represents the definition of the term.
A micro SaaS, as defined by Tyler is:
“A SaaS business targeting a niche market, run by one person or a very small team, with small costs, a narrow focus, a small but dedicated user base and no outside funding. Hence, micro-SaaS.”
These types of businesses have the ability to be location-independent, have low overheads, high margins and relatively low risk for the company. With no outside funding, many have bootstrapped from next to nothing to grow a viable business.
Storemapper fits the bill as a great example because it provides a very basic service to solve a clear problem. It’s an app which can be installed very quickly on a website to create a store locator service. There is no coding required, so basically anyone can handle it. That’s it. Besides analytics to monitor which stores are getting the most traffic, this is a micro SaaS that solves a very specific problem.
Why are we seeing more micro SaaS?
You can probably instinctively see a few of the attractions of creating a micro SaaS. One of the first things these business owners often say is that they can get the benefits of monthly recurring income, just like a full-fledged SaaS, but without the myriad hassles that can go with running a large platform. (Of course, that recurring income is usually proportional as well).
Where large SaaS need to build up to big teams to keep them running, often with costly overheads and office space, the micro SaaS might be run by one person. That smaller monthly income doesn’t matter so much when it only has to provide for one person. In the case of Tyler Tringas, he ran Storemapper while traveling the world and was the sole team member, up until hiring a few extra people. The business still remained small, but hiring team members allowed him to unplug for weeks at a time while traveling (we can see the attraction there too!).
Tringas also likened going micro to honing a craft, much like an artisan would over time. There is some satisfaction to be had from providing the best possible solution to a narrowly focused problem – something which you can be the expert on.
Some micro SaaS have been founded that way deliberately, while others have come about as their founders sought to solve a problem they had themselves elsewhere. A great example is Drip founder and serial entrepreneur, Rob Walling. He formed the basis of Drip while seeking to find a way to improve conversions for HitTail. When he found that his creation increased HitTail’s conversions by 30%, he knew he had a marketable product.
What makes a good micro SaaS?
While the basis of a micros SaaS sounds simple enough, finding something that will work well in this space is not necessarily easy.
Tyler Tringas describes a rule he has; “be five times better than customers currently pay.” As he says there are two parts to this rule. Firstly, potential customers should already be spending money to solve the particular problem that you’re aiming to solve. Where people are usually solving that problem in some kind of way for free, even if it’s not particularly convenient, it can be difficult to convince them to start spending money on something which they weren’t spending on previously.
Secondly, by his estimation, you should either be five times cheaper, or five times better-performing than their current solution. There are still many opportunities out there where businesses are either forced to pay a lot of money for a solution, or they’re using rickety old software that just doesn’t do a great job.
It’s a bit like the “unbundling” SaaS we’ve talked about in a previous article – sometimes a business segment is small enough that the huge startups don’t want to target them, but significant enough that they need a more specific solution. Often, those big, bulky SaaS packages are just too much software for them.
When developing a micro SaaS, the prevailing view is that some existing competitors is a good sign. This likely means that there is a decent market for the service (although of course, you’ll want to confirm this with your own research). If there are already too many competitors covering your idea though, it’s time to look at something different.
Having a clearly defined market for your idea is another factor in how successful you are likely to be. Those who try to market their idea to everyone often end up attracting no one, because it’s too difficult to target the messaging just right. Consider this extract from Tyler Tringas:
“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. 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.”
Of course, these SaaS don’t always remain “micro” in the sense of only having a small team, many have grown, or been acquired by larger companies to add to their own suite of products. Drip grew to a considerably bigger size and with more features than when they began as a micro SaaS, then were acquired by Leadpages in 2016.
Finding your fit
This idea is something that has regularly been talked about in SaaS circles; sometimes something appears to be a great idea and checks every box, and maybe it is a great idea – for another founder.
The thing with a micro SaaS is that it will be a something that you as a founder will have to spend the next few years (or at least many months) building up, with a lot of the work being done yourself. Dan Norris of WP Curve refers to “enjoyable daily tasks” and describes the idea like this:
“It makes no sense to start a business that is going to have you doing work that you don’t enjoy. So think long and hard about what your day to day tasks will be in your business. Visualize yourself doing these tasks.
If you don’t like what you see, then it’s not a good business idea for you.”
The rise of the micro SaaS has made developing and building up a SaaS company a seemingly more accessible achievement for more people, but it also is worthy of note by the bigger players out there.
These are the players coming up to nip at your heels, to take care of a segment of the market that you are not doing the best possible job of serving yourselves. These micro-businesses have often forged ahead to build significant customer bases and monthly revenue, making them attractive prospects for anyone looking to acquire.
With multiple examples of successful micro SaaS already, we think that this will be a trend for some time to come.
Koombea helps companies build highly successful SaaS and mobile apps. Talk to us about how we can help you today.