MicroSaaS is a new category of SaaS startups that target the long-tail of niche use-cases and are usually ran by one or a few founders. Their niche markets and growth rates rarely make them venture fundable, but founders can often bootstrap $200k+ ARR businesses. The subscription revenue can be a great source of passive income.
I break down MicroSaaS in three ways, 1) What is causing the trend? 2) What are the effects today? 3) What do I predict the future will look like for MicroSaaS?
- Faster time to market. The existence of cloud and payment APIs lets founders abstract away functionality that is non-core to the business. Ten years ago, developers needed to build payment infrastructure and lease out servers in a data center.
- Low or zero startup costs. Starting a software business has never been cheaper. Usage-based pricing for cloud and payment APIs make startup costs make MicroSaaS possible without upfront capital.
- Larger total addressable market (TAM). Consumers are more comfortable purchasing software for niche tasks. Businesses are becoming more digital. Creators on the internet need software to manage their businesses, whether it be Shopify stores or paid newsletters.
- Easier to integrate. Individuals at companies are more empowered to use free or team plans before corporate needs to sign an enterprise plan. As organizations shift from on-premise datacenters to the cloud, integrating new software becomes more accessible. When SaaS is delivered from the cloud, it doesn't require end-users to maintain updates or uptime, so it requires fewer resources to manage for the consumer.
- Democratization of software engineering. Building and deploying an application is becoming easier. Low-code and no-code tools let people build applications without knowing how to code or being a software engineer.
- Micro Private Equity. Firms like Tiny and XOXO Capital purchase MicroSaaS businesses. MicroAcquire is a marketplace for buyers and sellers of MicroSaaS businesses. There are three sources of value creation in private equity, (i) financial engineering, (ii) operational engineering, and (iii) governance engineering. Micro Private Equity uses operational knowledge and scale to optimize MicroSaaS businesses.
- Building in Public. Solo founders of niche solutions struggle with distribution and product-market-fit. One solution has been for founders to be transparent about their journey. Founders share monthly revenue, number of customers, and experiment results on Twitter and IndieHackers. That transparency acts as a mechanism to connect potential customers with the MicroSaaS business. Since these founders aren't necessarily trying to build a venture-backed company, competition will find it tough to copy and split the market.
- Emergence of new platforms. MicroSaaS companies rely on platforms for both application building and distribution. For application building, low-code and no-code tools make it easier for solo developers to spin up new ideas. For distribution, some businesses may be add-ons or plugins to Notion or Shopify. I'm not sure whether or not this platform market will be winner-take-all or different ecosystems will arise. My bet would be a single platform.
- MicroSaaS becomes SaaS. I believe that one day we'll see a $1 billion company with only one employee. When it was acquired for $1 billion, Instagram had 13 employees. Until then, MicroSaaS will continue to become bigger in terms of revenue as tools and abstractions get better. Some of these applications will become venture backable, and the distinction between MicroSaaS and SaaS won't matter anymore.
- Financial Infrastructure. For MicroSaaS companies today, the options are limited. Either continue bootstrapping your business or sell it. I predict there will be additional financial infrastructure for these kinds of assets. Something similar to securitization of ARR that Pipe and CapChase do, but more risk-adjusted and friendly to solo founders.