More importantly, how can we look at these two sides of the market and learn how to come up with the profitable startup idea? Especially when you’re looking to build a fresh startup or developing new features for an already-existing one.
I’ll show you both ends of the SaaS spectrum that your new profitable startup idea should be aware of.
Coordinate 1: Startup Solutions
Total Available Market
If multiple companies/consumers (both B2B and B2C) have to go through a specific hurdle, then that’s your product. Sound a little simple? Let me explain.
Stripe’s answer was the following: if a merchant is setting up a shop, they need an extremely simple way to accept payments. That specific hurdle isn’t just shared by one business, however; thousands and thousands of businesses need to jump that hurdle too. It’s a hurdle to a lot of businesses. In fact, many indie hackers’ own bootstrapped startups encounter the same hurdle (as I’m sure all of you are aware).
That’s their “TAM” (total available market): all of those merchants.
But there’s also a minimum level of investment for the merchants, considering every single one of them wants to create their own payment gateway. That means a lot of small merchants won’t be able to jump the hurdle.
For example, let’s say each merchant is able to bootstrap their own solution for $10K. Small street merchants won’t do that—they’ll resort to just accepting cash. It’s not worth for them to build a card payment solution. Their profit margins likely won’t allow it.
And what’s the benefit? Accepting card payments. Which will likely net them higher sales numbers—say, $500 extra per month. Does it make sense for them to bootstrap this? Not really.
Illustration: Nico 189
And that’s just factoring in costs; we’re not even talking about the capability of building something like this. So $6K extra per year for a $10K investment (without time and effort included) doesn’t add up.
And again, the $10K figure is a fictional one. The cost is obviously higher than that, as many indie hackers already know.
So, street merchants would have to build their own solution. J-Crew would have to do it as well, a toy store would have to do it as well, and so on.
Instead of having a multitude of companies do the same thing all over again, a SaaS solution comes into play: “We’ve built this software. Use it, but pay us monthly so we can keep on developing it (and hopefully expand it).”
That’s one end of the spectrum; if a lot of companies would need to develop this solution from the ground up, then it’s worth you building a product. Especially if they need this product, but not all of them have the means to build it themselves.
In other words, the small companies would “split the bill” between themselves (metaphorically speaking), so that your product can exist and make their lives easier.
P.S: When companies are huge, it indeed makes sense for them to develop their own solution. See: Apple Pay and Amazon Pay. So your solution should be marketed towards the companies that can’t do that.
Coordinate 2: Startup Competition
Coordinate 1 is not the full story. There’s also another side of this: how “hard” is it to build a profitable startup idea like this?
Once you build a solution, the competition will come. We can see this happen in the Customer Messaging Platform sector. You’ve got:
Yes, all of them have nuances and differences, but it’s not a stretch to say that the market is pretty segmented.
Why? Because of how hard it is to build a product. In the customer messaging industry, the market has shown us that it’s not as hard to build a product like this. That’s not to say it’s easy, but a payment processing solution is definitely more difficult to create.
Factor in the lack of the lock-in effect in the customer messaging industry. And maybe the lack of the network effect as well.
So we’ve got the other end of the spectrum:
The smaller the gap is between yourself and the possible competition, the easier it is to build the solution.
Sure, it might take a year or two for the competition to catch up—but they will, especially if the entry point is not as high.
And what do I mean by entry point? Let’s think again about the payment processor platform:
- You’ll absolutely need to integrate with VISA, MasterCard, Amex, Discover, etc.
- You’ll need licenses for accepting payments.
- You’ll need unimaginable layers of security. That already begs for millions in investment.
For how many founders does it make sense to go through this hurdle? And, here’s the catch, how about when compared to what’s on the market already?
Intercom and Drift were copyable. In Europe, Revolut, N26, Monzo in Europe are copyable—that’s why multiple companies offer this kind of card.
Stripe is not copyable. WeWork is not copyable. Both of these have very high entry points (I know, WeWork is not the best example for profitability).
What’s the conclusion here?
The left end of the spectrum: Is the solution that you’re building something that multiple companies keep bumping into, but maybe something they can’t handle?
The right end of the spectrum: Is what you’re building something that’s either:
- Hard enough to replicate so you can keep possible competition at bay?
- OR simple enough to replicate BUT you’ve got a brief idea of how you can widen the gap once you’re set up properly?
The true answer is in the middle of these two.
And it’s not a perfect 50/50. For some it’s 70/30 in favor of “hard”. They can handle the long-term and have got the guts, connections, or background to have higher chances of making it happen.
Stripe and Square share the same market but, except for a couple of other alternatives, there aren’t that many payment processors out there.
Some prefer a 60/40 balance in the favour of “easy to replicate”. They bet on their future ideas (or rather, the execution) and would want to “divide and conquer” into smaller pieces.
Pick yours, but be aware of the two ends of the spectrum and place yourself wherever your personality can win.