I want to talk about markets this week. Recently, I’ve been talking to several consulting clients about their target markets, and much too often, two problems stood out. Either, they chose markets that were way too big for their business, or they found a good-sized market only to discover that it was not underserved enough and contained few if any critical, yet-to-be-solved problems.
Let’s start with the quantitative problem. How big should a market be? What markets work best for bootstrappers?
Bootstrapped businesses thrive best in niches, that’s common knowledge among entrepreneurs. But why is that? It’s a tale of survivorship. The successful bootstrapped companies that stood the test of time mostly started in a niche: they all focussed on serving a small fragment of the general population. They served this niche audience well, and it allowed them to build a sustainable business with a clear-cut product.
Niche populations have several interesting attributes that make them so desirable for bootstrapped founders:
- Niche populations are homogenous: People have the same problems, they have the overlapping goals, they speak the same language
- Niche populations are tribal: People are connected, they follow (thought) leadership, they derive identity from belonging
- Niche populations are measurable: homogeneity & tribalism allow you to find central places in which to measure the behavior of your audience so that you can take clear actions
With such an interconnected group of people, a few exciting opportunities present themselves. The network effect of tribal communities, combined with their aligned goals and aspirations, will make word-of-mouth marketing very effective and targeted advertising very cheap.
Influencers in niches are understood to be “experts,” and they are trusted members of the tribe. If you can get them to talk about your product, the implied credibility of their expertise will be transferred over to your service. These experts also reach a very well-defined crowd, which are almost all interesting prospects to become your customers.
Within a niche, differentiating yourself from the competition is very easy and won’t require too much of an investment.
If you pick a niche with low competition and find a critical problem that has yet to be solved, you will be able to build a sustainable business. You can always expand later on, but it’s easier to get going in a niche.
Bootstrapping in Practice
So, what if you have found a great niche but can’t seem to locate any problem that causes people so much pain that they’d gladly hand over their credit card for a SaaS product?
You are looking at a well-served market. While you can still build a business for such an audience, it’s a risky thing to do.
If you want to increase your chances of having a successful SaaS business, start in an underserved market. An underserved market is a market that shows some signs of:
- Very Little Competition: These markets are underserved because nobody expects to make meaningful amounts of money here, or no problem could be found that warranted a SaaS solution.
- No Competition, (Literally): Some markets have been missed by SaaS entrepreneurs completely. Not a single dedicated SaaS exists in those spaces. People get by on generic tools like Google Docs or even pen and paper.
- Unsexy Industry: SaaS founders are building software businesses. Many industries have yet to learn that software-enabled processes outperform traditional methods. Some of these industries are very far from the reality of a software entrepreneur. Cheese production? Woodworking tool manufacturing? Chicken farming? You don’t think of these industries a lot when you build a SaaS app using the latest and greatest new tech stack. Yet they often are incredibly underserved and long for someone to help them out.
So how can you find one of those niches? How can you leverage it being underserved?
Let me tell you about how we figured this out for FeedbackPanda, the EdTech SaaS that my co-founder Danielle and I sold last year. Danielle was an online English teacher, and she was teaching a lot; she often spent over 12 hours a day in front of her laptop, teaching kids in China. And two of those twelve hours were administrative work. We talked about the challenges of her work, and we figured out that all teachers suffered from a similar fate: student feedback would take hours every day. They all had to create feedback in the same way, and it was very similar. Having built text-substitution systems before, I saw a much better solution than doing it by hand. So here we were, having just discovered a niche with a validated critical problem that could be solved by a SaaS.
Here is a quick exercise that will help you find these niche markets.
To find a niche you didn’t expect to be “interesting” before today, you will need to forget what “interesting” means to you when it comes to SaaS markets. For a minute, ignore all filters that you would when looking at a SaaS product. Forget that you expect people to be in front of their computers all day. Forget that you expect them to be in an office. Forget that you expect them to work on documents for a living.
Now that you are in a more open state of mind, start looking at the world around you. You will see objects that were made by someone, goods that someone had to sell, services that were delivered by someone. For a few minutes, try to write down these: WHO is doing WHAT, for WHOM are they doing that, and HOW are they making money. Imagine that there is a large group of people who are concerned with these things and that they might be looking for your help. How could you, the tech-savvy entrepreneur, enable them to improve by transferring your skills into their domain?
This exercise will train you to go through your life with open eyes.
Now let’s make sure your ears are open, too. Whenever a friend, colleague, or customer of yours complains about something that is in their way of accomplishing something, anything, make a mental note. Someone just presented you with a problem.
As a German, I love complaining. When someone asks us, “Wie geht’s” (How are you doing?), we reply with “Gestern ging’s noch!” (Fine, until yesterday!) I have the theory that cultures where it’s normal to complain publicly end up surfacing problems much faster than cultures in which pointing out shortcomings is frowned upon. In any case, a problem that is known is a problem that can be solved.
So now that you have found a problem, ask them more about it. How do they solve it? Is it solvable? Is this affecting everyone in their industry? Is it critical? There is a lot to learn from someone venting their frustration.
Of course, not all of these thought experiments and conversations will lead to underserved markets. Patiently do it anyway. Over and over again.
That’s the mark of the unexpected: you never know when it will show itself. Increase your opportunity surface by walking through life with open eyes and ears, and you will find an underserved market.
Links I Found Interesting
Recently, a new(ish) way of note-taking has appeared: mind-mapping. The difference to the mind-mapping tools of the last 40 years: it now comes with good UX. The biggest mover of late was Notion, which has a new rival that promises truly interconnected knowledge: Roam Research. The most exciting contender, however, is Nototo, a mind-mapping tool that literally builds a 2D-map for your knowledge. In the comments on the Hacker News post, a lot can be learned about how the Method of Loci and Mind Palaces.
Peter from Pioneer Square Labs wrote about how they killed a business idea. He goes through the motions and explains in detail how they tested their assumptions, what numbers they found, and how that affected their judgment of the business idea. An interesting thing stands out for bootstrappers after reading this article that comes from a VC-focussed company: some ideas are perfectly fine for bootstrapped businesses, while they are uninvestable for VC funds. They are limited to billion-dollar ideas. Great for us bootstrapped founders. We get to work on things that “only” make tens of millions.
If you’re preparing to launch your product, the fine people of sizle have created a list of tools that will help you maximize your launch traffic. From startup directories to press submissions, this post will help you find communication channels you haven’t discovered yet.
For those who have yet to start a bootstrapped business and are looking for an extra dose of accountability, Indie Hackers has released their project Indie Hackers Start. Commit to a goal, find a partner, and get going right inside the Indie Hackers community. Build in public, and enjoy the support of a fantastic community.
Bootstrapping Success Stories I Noticed
Pierre de Wulf, the founder of PricingBot.io, tells the story of how he and co-founder Kevin Sahin sold their SaaS in Serbia. The story goes into great detail, even into pricing negotiations and the leverage they used. What a great accomplishment, and well deserved. Ever the entrepreneurs, Pierre and Kevin are working on their next project already.
Jon Yongfook is a prominent name in the Indie Maker scene, having been very vocal on Twitter about his businesses and the ups and downs that come with them. This week, he surprised the world with a big pivot: Previewmojo is now Bannerbear, and with that came a lot of refocussing and reacting to user feedback. This level of insight into the thoughts behind product and business strategy is rare even in times of radical transparency.
Finally, a post called “Thank HN: My saas paid my rent this month” caught my eye, and it’s a familiar story. Technical founder builds tool for life partner to do what no one else has yet solved with a SaaS. FeedbackPanda came to be the same way. While building a business with your partner is not the lesson here; it just shows that underserved markets exist all around us. We only need to listen.
Next Up: Your Choice
Until now, I have written about whatever I wanted on the blog. This week, I would like to try a little experiment with you, my dear readers. Please vote for an article from the list below that you would most like to read about by next Friday.
- Make it Sell Itself: On Referral Systems
- Finding the Most Painful Problem in a Market
- The Boring Truth of Successful Products That Survive
Here is the link to the poll. Participation is entirely optional, of course. I’ll be very grateful for every single vote.
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See you next week!
Warm Regards from Berlin,