Rob Walling (@robwalling) and I discuss the state of SaaS in October 2020. What are the newest trends? Who's getting ahead right now, what kinds of companies are they starting, and what channels are they taking advantage of? Is SaaS too competitive, and if not, how do you pick the right niche when it all seems so saturated? Are info products, paid newsletters, and communities a better path for indie hackers than SaaS? And do you really need to listen to this constant advice to build an audience?
What’s up, everybody? This is Courtland from IndieHackers.com and you’re listening to the Indie Hackers Podcast. On this show I talk to the founders of profitable internet businesses and I try to get a sense of what it’s like to be in their shoes. How did they get to where they are today?
How do they make decisions, both at their companies and in their personal lives, and what, exactly makes their businesses tick? The goal here, as always, is so that the rest of us can learn from their examples and go on to build our own profitable internet businesses. If you’re enjoying the show you should leave a review on Apple Podcasts. It’s one of the best ways to give back and support the show and help other people find it.
In today’s episode, I sat down with Rob Walling, the founder of TinySeed. Rob is somewhat of a recurring guest on the show. I like talking to him because he has such a wide perspective of what is going on. He was a founder and a bootstrapper. He grew his company, Drip, to an exit worth many millions of dollars.
He now invests in companies at TinySeed where he gets a wide purview to see all sorts of trends and opportunities. In this conversation we talk about what it takes to start a successful SaaS company as an Indie Hacker in October 2020. Not ten years ago, not five years ago, but right now, today.
We cover the different trends and opportunities you should be aware of. We ask the question whether or not you should start an info product instead of a SaaS company given how crowded and competitive SaaS has become and we take a look at how some of Rob’s portfolio companies are coming up with their ideas, finding new niches, and competing in such a crowded market.
It’s obviously a lot to cover, but I really enjoy this type of conversation and I hope to do this format more often. I hope you enjoy the episode as well.
What are some new things you’re seeing with SaaS companies today?
I think there is quite a bit because marketing channels that everybody thinks about, they all have a half-life, right? Cold emails started getting big in 2011-2012 when predictable revenue came out and it worked really, really well in the early days and then it started working less well and now what I’m seeing is it works in some niches that are not overly saturated with it.
But if you’re using cold email to get on a podcast, for example, Courtland, I’m not sure how many emails you get. I think we get about 20 to 30 a week and I’ve literally let one person on the podcast in ten years from a cold email. (Laughter). So, those are the types of things where – but pitching cold email to get on a podcast I bet that actually worked five years ago or something because no one was doing it, right?
There are still niches, like verticals, like the interior design space for example, because we have a company in batch one of TinySeed called Gather and cold email works for them because it’s just not oversaturated with everyone sending it to start-up founders and designers and whatever.
There is a lot new in the sense that old marketing approaches start to wither a little bit. I’m not saying they don’t work anymore because there are so many classic things that are going to work forever but you just have to figure out what the new tactics are.
I think some things that are certainly still working today, perhaps better than ever like integrations are such a huge of piece. Integrations are one of the few, they’re a moat. Think of Zapier. Would you compete with Zapier today? Probably not.
I personally would not, but I’ve seen some people who are trying it and it’s hard to say whether it is going well or not. But I think you’ve got a good point with the integrations being a huge moat because they just have so many more than everyone else.
Yeah, and that is what we saw. So, with Drip, which is an email service provider or marketer automation provider that I built with a co-founder sold in 2016 as you already referenced. We had 35 integrations in the first 18 months and that was such a big like lock. Lock-in is not the right word because we weren’t locking our customers in, but it was just something that no one else had.
And then there was the co-promotion. It’s one of only two marketing promotions that both allow you to expand your reach as a marketable event and help existing customers. Think about SEO. SEO doesn’t help existing customers. Cold email, Facebook ads they don’t help existing customers, but integrations and content marketing are the two bottom of the funnel content marketing where you are actually educating your existing customers.
I would say those things are new. I think the other thing everyone keeps saying it. I heard from some people is, “Oh, it’s not helpful to hear this,” but it is more competitive—bottom-line because SaaS wasn’t even a word 15 years ago and then it became a word sometime between, I don’t remember, 2005 and 2008 and then more and more people, and there were all these niches where you could launch a SaaS, and no one was there. And, of course, now there are very few of those.
What I think is different even between, let’s say, five or ten years ago and today is to shoot for one of these unfair advantages to get into a – you know, to build something sustainable in SaaS. I think being early is one. It sometimes requires luck and sometimes there is skill involved but being early to a space. An example of this is Baremetrics. Josh was early to the Stripe Ecosystem. It was before anyone had done this one-click thing oh-ah (ph) thing. The fifth start-up that did that was less novel and it didn’t grow as fast as Baremetrics did.
I think the other two pretty powerful things are – there’s three actually, having an audience, which I’m going to talk about because I got into a Twitter conversation about the true value. If I didn’t have an audience today and I was going to launch a SaaS, is it worth spending the time to build an audience today to launch that SaaS? And my thought is no, it’s not. But if you already have an audience, yeah, there is a huge advantage there.
The other one is your network. Look at how Nathan Barry grew ConvertKit. It wasn’t through his audience because his through audience he was at about 1500 MRR after two years or eighteen months. It was his network that built it. Same with me and Drip and there’s been a bunch we’ve seen. Noah Kagan is really good at this.
The last one is this unique ability – growth, but growth at a higher level. Growth chops like one of the few in the world has. Again, Noah Kagan knows growth really well. Sujan Patel, Reuben Gomez with BidSketch and DocSketch. He knows SEO like very few people.
So, if you have that you can go into a space, even a really competitive one, like Ruben’s in document – electronic signature space, which is a nightmare. You have DocuSign, HelloSign, all these things. But having that ability to get in there and find that proprietary traffic channel and own it, that’s a big deal.
That was a long answer but those are some newer things or newer trends I think if someone’s trying to get into SaaS today, these are things I’d be thinking about.
You’re being humble here but one of the newest trends that has been on my radar here is that as a bootstrapper-minded SaaS founder today, you can actually raise money and it doesn’t mean giving up the entire control of your company and having to be a slave to this goal of hitting a unicorn valuation and having to hire and grow faster than is healthy for you.
You can actually grow at a normal rate and still get funding and sort of de-risk your business. That is what you are doing at TinySeed and it seems to be a ton of companies and funds and vehicles for investing in people who five, ten years ago had no hope of raising any money whatsoever.
So, we’ve got that to talk about. We’ve got all the stuff that you listed. Maybe a good place to start is with this audience first mantra and this Tweet that you made. People have been saying this forever, that, “What you want to do if you want to find an audience or a customer base for your product is that you want to build your audience first.”
So, that means you write helpful stuff online and you put out helpful tweets and blog posts and eventually you get lots of followers on Twitter and lots of people on your mailing list. Then you can sell products to them because it’s super easy because you’ve got the distribution channel figured out.
You’ve got all these people who want to hear from you. But your Tweet, I think it was a couple of weeks ago, you said, “Building an audience first, while it’s still good advice when selling info products, it’s much less so good advice when you’re selling a SaaS product.” That is because ultimately people buy info products and SaaS products for different reasons.
Why don’t you talk to us about that? What does that mean and why do you think it’s not super helpful to build an audience when you are trying to launch a SaaS product?
I think such a big part of this is info marketers, which hey, I’m an info marketer too. I have market information, I have three books, I run a conference, and events I would think of – they’re a community but there is an information aspect to that.
I used to have an online course. I don’t really anymore, but I’ve done both. By far, having the audience when I’m selling books, information, or education is incredibly valuable and I think that’s probably the only way I would go if I was going to again sell books, courses, and stuff like that.
With SaaS, hour for hour, dollar for dollar, pound for pound, there are so many better marketing channels that when you’re selling a tool that helps someone get something done. Because, really quickly man, if you build an audience of ten-thousand email subscribers, for example, you can sell a book to a thousand of those people. That’s not out of the question.
And, whatever, you sell the book for $30 or you sell the course for $100 each and suddenly you are talking about a $100,000 launch to 10,000 people. That’s not even that hard to do. I bet you can sell to more than 10% of your list.
With SaaS it just doesn’t wind up that way because in general your audience, they don’t all have the same pains that need to be solved month over month at a price that makes sense to charge them.
So, yeah, there’s just a big difference. Again, if you already have an audience of course it’s an advantage. But I was starting today with zero audience and I wanted to launch a SaaS, that would not be something that I would be doubling down on.
I think it’s an interesting point when you are talking about what percentage of your audience actually wants the thing that you’re building? And for SaaS products it’s usually much lower than info products, as you mentioned.
I wonder why that is because when I look at people who are building info products, they’re often cultivating an audience specifically around a topic that they know their audience is going to want to be interested in and that they are going to buy.
So, Adam Wathan is a famous example of this. I had him on the podcast last year. He grew his Twitter account from something like 1,000 followers to 30,000 followers in a year just by Tweeting out these helpful design tips targeted at developers.
He has gotten super good at being helpful about this stuff. Tons of people join his mailing list; tons of people follow him on Twitter. Then he wrote a book about design tips for developers and he made something like 400 grand in his first day and a million dollar in his first month.
Which are outrageous numbers but it’s because, in my opinion, a huge percentage of the people who bought the book were also people who enjoyed his tweets. He wasn’t tweeting about random personal stuff in his life. He didn’t have a random hodgepodge of topics. He was only tweeting about this one topic that he wanted to write a book about.
Now, for future info products, he can write other books or other courses about a similar topic and it makes sense. His Tailwind CSS product is, again, kind of like design for developers. And I wonder, in your experience with SaaS companies, most of the companies you have invested in have not built an audience before they started their SaaS products.
But for the few who have, were they building an audience in the direction of their SaaS product? Or were they building an audience that had really nothing to do with what their SaaS product ended up being?
Yeah. No, that’s a good way to think about it. I’m trying to think of specific examples. There are so few people who built audiences specifically for SaaS. They often do build it for info products and then they stair-step their way up to SaaS. That could be a way of diluting it, you know, to your point that the reason that audiences might not work as well is if they aren’t designed specifically for that.
One big example I can think of and it’s only an N of one (ph), but it’s a big-name info marketer who we would know his name if I mentioned it. He built this list of, I believe, half a million who were following him and there is something about when you build a really big list, there is a lot of aspiring founders.
There are a lot of people who want to do something, so they are willing to buy a book about doing the thing and then never read it. So that is a big part where you can sell a course for $100 or $1,000 by promising this is going to show you the way because a lot of people will buy it and then never consume it and you don’t then get a cancellation because you’ve already sold it.
That’s where the moment where you introduce an ongoing tool that will now help you put in the work and get it done. Within three months everyone gives up or the vast majority give up. I do think that is a big piece of it. Info products in general have an aspirational aspect to it and there’s a one-time sale aspect to it.
And so anyways, I watched this info marketer and build this massive list and he was making hundreds of thousands of dollars on these launches, maybe a million bucks. Then he went to launch a WordPress Plugin. He tried to do it on subscription, and it didn’t work because people would sign up and then cancel because no one actually wanted to put in the work.
Then he went to a one-time fee and he made butt loads of money again. And said, “Well, now I can go to SaaS.” So, he went to SaaS and got his ass handed to him because, again, the people didn’t want to put in the work, and they didn’t want to stay subscribed to something.
He was educating people on how to make money online and so it was Landing Page Builders and Stripe integrations and this and that. When you were telling people, “Here is the ebook to learn how to do it,” they were buying it.
Word Press Plugin, maybe they were willing to take a leap. Once it was SaaS that they were trying to buy they didn’t want to put in the work to actually build the business and they let it go.
So maybe that is the paradigm I’m thinking in and I’m trying to think. There are so few people.
I think Ben Orenstein is one who built a list, he runs Tuple, with his co-founders and he built a list that is developers and then he launched a pair programing tool, but that pair programming tool was already built and acquired and shut down by Slack.
The exact same idea was already done two or three years ago. So, the market was validated and that was a huge gap that they entered into which is a huge luxury. And they did a good job and they implemented well but I would venture to say if Ben had zero audience he’d probably be approximately at similar order of magnitude as he is today.
Maybe there was some advantage, but should he had stopped and spent a year building an audience while they were writing code? I would say that for sustainable SaaS growth, cold email and SEO chops and a network and integration, they are just way more valuable than having this audience because you burn through the audience.
That’s another big thing, right? You burn through it quickly. You don’t launch five SaaS products in a year, but I’ve seen people five info products in a year and the reason is because you need new stuff for those audiences because audiences tend to be static.
Yeah. You mentioned earlier Nathan Barry as being someone who had built an audience. I was subscribed to Nathan Barry’s list many years ago. I was reading his blog, he was putting out so much stuff for aspiring founders and then he launched ConvertKit which is this, basically, this email marketing software and he stalled. His revenue stalled.
I had him on the podcast right after I started the Indie Hackers podcast and he told me the story of how his revenue stalled and it didn’t really matter that he’d written this ebook and built this audience and had a lot of email subscribers.
The way that he broke out of that was, kind of like, number one, appealing to his actual network which is not quite the same thing as an audience. It’s people that he actually knew that he could have one on one conversations with. Whereas an audience is kind of like, I think it’s more of a broadcast channel. You send an email to thousands of people and write a tweet to tens of thousands of followers.
He also did a lot of like, another tactic that you mentioned, that doesn’t work quite as well anymore, but just cold outreach. He would just email individual bloggers and people and say, “Hey, what do you think about this?” and he got so much feedback by doing this sort of thing that didn’t scale and so many sales from doing that that it kind of kick-started his growth.
That was the main lesson from my podcast episode with him. What kick-started his growth was this cold outreach. So, despite building this huge audience it didn’t really translate into success for his SaaS business. And yet, this advice to build an audience persists.
I think it’s because a lot of people that are saying it are – tend to be information marketers. Like there’s very few Silicon Valley SaaS founders. Like, look at the big Silicon Valley companies or anybody that gets venture funding and is growing a SaaS company, you don’t hear them saying, “Build an audience.”
You typically hear it from the Twittersphere and the bloggers and the info-marketers, I mean, that’s – and building an audience is not a bad thing to do. You and I have both done it. If you want to build a podcast in a community, yes, build an audience. If you want to build a SaaS company, I would say, yeah, again, I think it’s a little less. But earlier, do you feel like? Can you think of an example of, that you know of, of a SaaS founder who built an audience beforehand and really target – and I don’t mean a launch list, because when I was launching Drip of course I built a launch list of people who wanted to sign up for this new ASP, whatever.
My audience who was following me, the podcast, and my email list, and my blog and everything, they were start up founders. I was definitely targeting Drip at start up founders but it’s not like I cultivated the whole audience around email marketing. I was not the email marketing guru. I’m having trouble thinking of anyone who has done that. Can you think of an example?
I mean, this example kind of blurs the line between what you’d consider an info product and SaaS, but I think Pieter Levels has done an unbelievably phenomenal job building an audience. He’s probably the best person when it comes to building in public.
He’ll sit down, put up a Twitter poll for, “What should I build next?” He’ll put his mock-ups in public, just tweet every step of the process. He’s not embarrassed. He doesn’t care if it looks crappy. Lots of people like seeing what he’s building, and he ends up attracting lots of different makers. He’s kind of building for these makers.
And his first product, Nomad List, maybe you’d call this an info product but it’s essentially a bunch of information about which city should you travel to? Except rather than being something he manually updated himself all of the time, it’s kind of this living, breathing website where the community members themselves are constantly updating this data and he doesn’t have to do a crazy amount to keep it fresh because it’s crowd source data and he sold access to his community.
And off the back of that, since he had so many digital Nomads who were using this, he built Remote / OK, his job board. And if you are basically a developer looking for remote work, or pretty much any job looking for work, you can go there and find a job and it works the same as any other job board, which, again, is not necessarily an info product.
It’s not a course or an ebook, but it’s kind of is just this marketplace connecting two different people and it’s not quite like a SaaS product with a ton of features.
I would lean towards calling it SaaS, but I think he did a pretty good job converting his audience into users, but I also think a lot of his users come from search engine optimization and these other channels. I’m not sure how much of his Twitter following, which is substantial at this point, it’s close to one hundred thousand, I’m not sure how many of them are Remote / Ok users.
Right, at a certain point, the growth has to turn from the audience to these flywheel channels, the SEOs, the cold outreach, the advertising because you just, no matter how big your audience is you tap it out. When I look at Nomad List does he have a – when I think of SaaS, I think of someone paying a subscription usually for a tool. Two sided marketplaces, they’re along the line, as you said, of if one side is paying maybe that is SaaS, but it’s more subscription software. Does Nomad list monetize with advertising or some type of subscription?
So, yeah. There is advertising and there is also a subscription, so he has a community. It’s similar to if I made Indie Hackers paid from the beginning. You know you have to pay – I think he just started charging like a dollar a month or something just to filter out spammers from the community but then it turned out having a community was a very natural thing to do for a bunch of digital nomads who want social connection when they are traveling.
So, it makes a decent chunk of change from people paying a monthly subscription to this community. They get access to each other, they can leave comments on these locations and just meet up with each other, which makes sense. But would you classify that as a SaaS company?
Personally, I wouldn’t. I think of that as the Dynamite Circle or Micropreneur Academy, which is a community I launched in 2011, or Founder Café, or eCommerceFuel is a community. They are recurring subscriptions, but it is to be around other people.
It’s not a tool that I log in to, to manage my projects. You know what I mean? I think of SaaS more as tool based. This is interesting. You and I could probably go down a whole philosophical rabbit hole around the definitions of what is SaaS. Is subscription software SaaS? Or does it have to be a tool to solve a business problem? Because communities and two-sided marketplaces I think are on the line there. I don’t know that it’s necessary. That may be another podcast episode that we want to dig into.
This reminds me of what I would consider to be another trend. I find myself talking endlessly in the podcast nowadays about these info products. About educating other people and it seems like among Indie Hacker-types it is becoming increasingly popular to make money through info products.
Pieter Levels is a good example because he is so inspiring to people. He just posted a tweet the other day where he said, “Year one I was making 10 grand a month. Year two, 20 grand a month” and he goes all the way to year six and seven. Last year he was making 80 grand a month and this month he is up to 120 grand a month. He has these border line info product community type things.
You see a lot of people doing the same thing with Substack. You see people following in Adam Wathan’s steps with launching online courses. It’s not like info products are a new thing, but I think for a lot of people when they look at the advantages between building an info product and building a SaaS business, it’s starting to look like info products might be a better deal.
There is a lot more buzz, even in Silicon Valley nowadays, about info products and about people with these Substack mailing lists and these people with huge Twitter followings than I think there ever really have been in the past.
When I look at why people want to start SaaS companies often, especially if you are a developer, it’s this dream of having to not do a ton of work and yet you get this recurring revenue. You build this money-making machine and of course you and I know, like, it is actually a ton of work, and you don’t get to sit down and rest on your laurels.
But the dream is that you get to create some widget, you build something, you go to sleep, and it keeps making money, the code keeps working for people. Whereas if you are doing a paid newsletter or subscription you have to keep putting out content forever and you’re never going to be able to chill, which sucks.
If you’re doing and info product it’s usually this transaction that is upfront and people pay for it once, they don’t pay for it again and so you’ve got to write more books and courses in the future. It seems super effortful and yet, people are really into it this year just because of how much money you can make and how quickly you can make it.
So, what do you think about this sort of dichotomy? Should Indie Hackers be thinking more about info products or is SaaS still viable despite being super competitive and taking a while to get started?
SaaS is still super viable, but this is the stair-step approach to bootstrapping. Just Google that phrase if you haven’t. I wrote this post and I’ve done a conference talk on it and it’s start small with a one-time sales products whether it’s a WordPress plugin or an info product.
There tends to be less competition. You tend to be able to gain confidence, you make your first dollar online. Again, building an audience isn’t that hard compared to building and growing a SaaS company.
And so, yeah, the info product phase or the info product attraction from our communities, our developers and early-stage founders has been around for as long as I can remember. There was Patio11 launching his email marketing course back in 2011. I wrote a book in 2009 and launched an online paid membership site in 2010. Amy Hoy did something in the – I don’t remember when it is, the early 2010’s when she launched, you know, what’s it called? 30 x 500? Is that right?
There are legions of us, and we’ve been doing this for a long time. I think the probably rise in popularity has come around because of a couple of things. One is SaaS is more competitive, but I also think there are more and more people on the internet all the time and more and more people in these communities all the time.
I do think it’s easier today, while it’s competitive, it’s easier today to build and audience than it was pre-Twitter, you know, when it was just blogging and Digg, in essence, for those who remember Digg.
I do think it’s a perfectly viable and a great place to start if that is your thing. Some people don’t want to build an audience, they don’t want to build info products and they really do just want to run a SaaS.
They look at Stairstep and they think, “Oh my gosh, I don’t want to build this thing for now. I’ll get up to a hundred grand and then I’ll quit my job and next I’ll build a SaaS after that.” To me, that is the most repeatable, the most reliable way to do it. But I understand if you don’t want to do that. I have many, many SaaS friends who have zero desire and they really do just want to build the company.
But multi-million-dollar info product empires have been around for as long as I can remember. From back in the – you know, there’s Derek Halpern and there is a whole crew who was in the 2005-2015 and they are all still around, but they’ve shifted what they are doing.
This is now, I think, entering our sphere more. I think it’s always been around though. I’m curious, do you feel like it’s more popular now and is more on your radar?
It seems so. I think the point you made is a really good one, that there are more people online doing this kind of stuff. There are more people who can consume the kind of content that you are putting out.
Twitter is bigger than it has ever been. The tech industry has more participants than it has ever had. There is this whole no-code movement so now you have people who don’t even code who are talking about starting SaaS companies, which is crazy.
But it just expands the circle and market of people you can target which allows for people to have more room to produce info products. There are also more platforms for producing these products. I mentioned Substack a couple of times.
You’ve got this whole creator economy where people from the non-tech world, ironically, have been using these tools created by people from the tech world to make a living online for many years now. There’s like a lot of famous YouTubers. A lot of people getting rich off Patreon or Etsy or all these different platforms so they can just be creators.
But there hasn’t necessarily been this platform for people from the tech industry. In what way do people from the tech industry really make money by using some sort of platform to put out content? Nothing, to be honest.
They have to usually create their own business, like Ben Thompson from Stratechery, with their own blog and their own Stripe integration. Now we have Substack and Ghost recently added pricing and I think it’s becoming more envogue for people to use these platforms to put out content and build an audience so that might be bolstering the numbers as well.
I think the success stories are crazy. When you see how quickly people can make money doing this stuff. Drew Reilly was on my podcast a few weeks ago. He started his newsletter, Trends, earlier this year and he’s already at over 25 grand a month in revenue.
I had a founder who wants to be anonymous, but he had a couple of months this year where he made over 500 grand in revenue from a video course that he made. There are so many people who want to learn how to code, who want to learn different skills and who are willing to shell out money for these info products.
I think when you look at a lot of the SaaS founders I’ve interviewed they frequently get to higher revenue multiples and it’s a little more scalable, obviously, and they can hire out and take a step back as a CEO and they’re not sitting there writing code forever. In the same way, these info product people are working to the bone. At the same time, it just takes so much longer to get there.
Most of the SaaS founders who I talk to who are in millions of revenue have been working on their products for half a decade or a decade. Whereas a lot of the info product people have started last year and they’re already building up. I think there is something inspiring about it. As you said with your stair-step approach, it’s a really good first step to take.
I totally agree. It’s a way to get there way faster and not do the long, slow SaaS ramp of death and then if you can build that confidence, the tool belt, the marketing chops and then you make money. If you do make hundreds of thousands a year and launching a SaaS app becomes a lot easier. In essence that is what I did. I’ve seen other folks do it.
The thing that I will say is that most people who I’ve seen do info products, they eventually get tired of it. Nathan Barry, you’ve interviewed him, why did he stop writing his books? He was making hundreds of thousands of dollars per launch. He says it was a hamster wheel. Why did I lean further into software? It was like a, the value, the long-term value, the scalability, and the revenue multiples if I ever wanted to sell. I can’t sell my personal brand. I can’t sell Start Small, Stay Small.
I can sell Drip for many times the revenue and that became a new goal for me when I hit 35 or 37. Yeah, I just don’t want to be cranking out content anymore. So that is the flip side, but I also think that info products and courses and stuff are an amazing business.
If you look at Substack and Patreon and these other tools that enable the creators, those tools are selling picks and shovels to the miners, in essence, they are selling the tools to get it done. Those companies will become worth way more than almost all the creators using them. Not almost but all the creators using them.
The real money, if that becomes the goal, to not make a million dollars a year that I am paying income tax on, I want to sell for a hundred million dollars and pay long term capital gains on that because I built this Substack to 20 million in annual revenue.
It does depend on your phase. If I was in my 20’s my goals are different than if I’m in my 40’s. It just depends on phase of life and goals and really what you want out of it. I love that we have these options. I think it’s only positive for our community that we do have the option to do info products. That there are shortcuts, overstating it but they are definitely a shorter cut than trying to build SaaS from scratch.
The line between what is an info product and what is a SaaS company seems to be blurring a little bit. At the very least I can say that info products look a little bit different than they used to. Back in the day it was like, “You do an ebook or you do a course.” That was kind of it. It was pretty much the only info products.
Today I would say Nomad List is kind of this weird blur. Like, “What even is it? Is it an info product?” Indie Hackers itself, arguably an info product which started as a blog but morphed into a community and then a lot of other tools and resources for people.
If you are like me and you like coding, quite frankly I would also get bored doing nothing but interviews all day, every day, and that’s the only thing I do. I spend a great deal of my time coding actual tools and utilities for Indie Hackers. I think there is this easy way to move from and info product into more of a tool.
Adam Wathan did the same thing with Tailwind CSS. It’s like, “OK, I’m writing books but what if I created my own CSS framework and I charged a subscription for the community attached to that?” That is working really well for him.
A lot of the people who have gotten into this in that early phase of being an Indie Hacker where they don’t have an idea and they’re not sure what to work on. Because the SaaS markets are so mature, I feel that people feel intimidated and they look out there like, “I just can’t find a niche to build a SaaS company in. I just don’t know what I am going to do.”
Whereas when they look at info products it seems pretty easy to come up with an idea, “I can’t teach people this.” It’s so crowded but it’s not winner-take-all so you can be the 45th person to teach people React and still make seven figures a year from your React course.
You mentioned earlier that you don’t think SaaS has gotten to the point where it’s too competitive or there aren’t new ideas. How do you look at this? How do people who are trying to decide what to do, how do they find a niche in the SaaS space?
There are a bunch of different ways. I like to think of it in terms of different frameworks or mental approaches and mental models to get in. One thing I’ve seen a few people doing well, Craig Hewitt did this with Castos, which is podcast hosting, is first, he started a productized service which was podcast editing and production services.
He got that up to 20-30 grand a month and it requires people to be involved. It’s not software, it’s a bunch of people doing stuff, but productized X-hundred dollars a month. Then he’s in the space, he was talking to people and their WordPress plugin came for sale that was called Seriously Simple Podcast Hosting and it is a plugin that you can install in WordPress and you can have a podcast.
He acquired that for a very small amount of money. And then he built Castos which is a straight up SaaS, a platform agnostic, it’s not only WordPress it is also subscription and podcast hosting. It’s what I used for TinySeed Tales and Startups for the Rest of Us, and MicroConf On Air. And that’s how he got into it, through this through line of these other businesses that he started.
He didn’t have – you know, with Podcast Motor, which was the editing service, he didn’t have the long, slow SaaS wrap of death. He got up to 20-30K within twelve months, maybe eighteen months tops.
But then the real avenue to get in to Castos, because starting from scratch would have been really hard, was this acquisition which I think he said on my podcast that was, on my podcast, it was like mid four figures. Mid-to-high four figures. So, it was like less than ten-thousand dollars I’ll put.
If you have this product test service doing 20-30K a month, dropping five or ten grand on something that allows you to basically get a leg up and get tens of thousands of free users that you can then learn from and build a SaaS on. That is a very small price to pay at that point. I think looking for avenues to acquire or adopt something if you don’t have the money is a very interesting idea.
Yes, I think that is super insane. I hadn’t thought of that because essentially if the problem is that the markets are too competitive and everything has already been done before, let’s say you believe that, well, then you can just buy something that has been done before and now it’s your thing.
You can get into that by selling an info product or by having a productized service like in your example and that seems like a really good place to start. A lot of people who are considering being Indie Hackers have the funds even if they don’t already have an info product.
A lot of people are developers who are like, “I’m making a lot of money working for Google and I want to build something on the side and earn my own freedom from my own product, but I have to quit my job, etc. or I have to work on the side.”
I think often the answer is “No, you don’t. You can do exactly what you were doing twelve years ago. Work a job, use your savings from your job to basically buy a SaaS company. You don’t even have to take this first step of having an info product or a productized service. You can just use your developer salary to basically buy something.”
That is a cool way to break into the market. You’ve invested in quite a few. In TinySeed’s 2020 batch I think almost all of your companies are SaaS companies and most of them are B2B. How are they getting started? How do they find these niches?
That is a good question. I was actually just going to mentally run through them. There were several that were scratching their own itch. There are two of the companies are in the construction or are related to construction. Both of the people who started them were in the construction space and the software was downloadable Windows software, so they wanted to scratch their own itch in terms of making something better.
I think you do have to decide if you want competitor pain or customer pain. Competitor pain is when you build an email service provider because you have competitors everywhere, it is a feature race. It’s like, “Oh my gosh. Everyday Mailchimp and Drip and Klaviyo are launching stuff that I then have to compete with.” So, competitor pain is where it is a mess.
Customer pain is where it’s much, much, much less crowded. Like in the construction space and the legal space the software is shit. It’s terrible. But now you have customer pain because these folks are non-technical. They are pretty hard to sell to. They tend to be a little price sensitive. The margins, especially in construction aren’t great and the support is relatively high.
You could build software for independent insurance agents, right? Independent insurance agents and it’s like, there aren’t that many competitors and the software is really bad. You can build great software but now you’re taking that burden of a competitor. I’m sorry, of the customer.
So anyways, a couple of them are scratch your own itch, there are a couple that are subject matter expertise, so there’s one in batch two called DealForma and it is a database of M&A and fundraising in the pharma, in pharmaceutical big companies and companies that are raising funding.
All types of people buy this. Pfizer might want to subscribe to this so they have info on who is raising money and who they may want to acquire. There are some brokers that buy it because they want to know what deals are happening or whatever.
So, Chris, the founder, was in this space and was looking around for this kind of data and realized he had a real expertise in processing this data and being able to produce it. It is a SaaS subscription service, but it does border a little bit on the info.
They are going out and pulling in and sanitizing the data and there is a lot of technology behind it that makes this thing really valuable. There was a little bit of industry knowledge there. And then, I’m trying to think of what else. Oh, Squadcast which you and I were talking about before you hit record. I think they were going to start a podcast but never did so it wasn’t really scratch your own itch, but it was seeing a need in the market. There really wasn’t a high-quality way to record so you know, let’s build this tool out.
That’s a good way to break it down. I think the first two require some degree of expertise because if you are solving your own problem, ideally you are an expert in having that problem. You know what it’s like to have that problem and what you need solved.
If you’re not “lucky” enough, and I’ll put lucky in quotes here because like, there’s ways just like be dedicated about identifying your problems. But if you’re not lucky enough to have a problem that hasn’t been better solved by competitors then I think it can be tough because a lot of people say, “I’m trying to solve my own problem, but I just don’t have any valuable problems.” Because they don’t happen to work in a nascent industry like construction where tech is not really—tech is nascent in that industry and tech hasn’t really taken over.
I’ve interviewed other people who are building SaaS for real estate brokers and all sorts of industries which are a little slower to adopt tech. So that seems to me pretty similar to this idea of having industry knowledge. And then Squadcast, I think what is really cool about them is that they found a gap by taking advantage of new technology that didn’t really exist before.
Before I used Squadcast for Indie Hackers I used Zencastr. The founder of Zencastr basically saw the same thing as, “Hey, there are these new browser API’s where you can actually record live audio on the browser and upload it.” This did not exist a year ago. And now I can take this problem and I can basically or take this new technology and I can basically build a product for podcasters that doesn’t exist so that I can be super early because no one else is doing this.
And then I think Squadcast, in a way, leapfrogged Zencastr because one of the big issues with Zencastr is that you can’t see the person that you are talking to during the podcast. So Squadcast was like, “Well, you know the browser is making video chat better than it’s ever been. This is an opportunity.”
I think that is another great way to find ideas. Like, “What’s actually new? What’s possible that wasn’t possible five or ten years ago or even last year?” We’re seeing a lot of this with AI. I just talked to a guy who’s got an AI generated media company and he’s able to interview a thousand founders in three months with an AI bot basically.
You see GPT-3 and people producing these blogposts and you can’t even tell they aren’t written by a human. Who even knows what kind of companies are going to come out of that? I think as a founder looking out into the world and you’re trying to figure out, you know, “What am I going to work on?”
I love the way you phrase it, competitor-risk vs. customer-risk. Both of those seem super scary. “I have to build something no one has ever built before and I don’t know if customers are going to like it.”
Or I have to find some crazy super niche that I’m not even sure where to start looking where to find one of these niches vs. I’ve got to build something that has already been built before and that company is crushing everyone, and they have a million features and it’s going to take me five years to catch up. Both of them seem pretty challenging to deal with.
Yeah but, they are except for competitor pain these days, personally if I were to build another SaaS, I’d probably go after that. I do have the experience and some assets at my back to be able to do it, but I love the bigger markets. Oftentimes with competitor-pain all you do is find out why everyone hates this competitor.
Sales force is huge. You know there are people out there that don’t like it. Why not? And can I build a product that is basically the opposite of Salesforce? Infusionsoft, back in the day they were a marketing automation provider, they were big. They were growing fast but there were a bunch of people who hated it. So, when we pivoted Drip away from being just a little email capture widget it was, “What is Infusionsoft doing poorly and what can we just truck them on? QuickBooks?”
Everyone hated – not everyone. Some people hate QuickBooks. Xero came in and came in and said, “What do you hate about QuickBooks?” “Oh, it’s not online. Oh, it’s not easy. It’s not this-and-that.” Those are really competitive spaces but, again, I wouldn’t do it as a first step on my stair-step if it was the very first app I launched.
I always use the analogy play high school baseball, then play college baseball then play single A, which is minor leagues, then AA and then go to the Pros. I would not go and compete against Salesforce or InfusionSoft or QuickBooks today if I had not played high school baseball. I think stair-stepping your way up can be a way to get into those more complicated spaces or more competitive spaces I should say.
I actually just pulled up a page from the State of Independent SaaS report from last year and it’s about how people developed or found the idea for their SaaS company.
The State of Independent SaaS report is a giant survey you send out to SaaS founders to try to get all the information on how SaaS founders are coming up with ideas, starting companies, how much money they are making, how they are hiring, how they’re distributing their products, etc.
Yep, yep. We actually changed this question this year to have fewer in the other category because last year we had almost 13% said “Other” when I said, “How did you develop the idea for this product or company?” But 50% said “It was a specific problem I was experiencing,” so that is scratch your own itch.
23% said, “It was a problem at my place of employment.” So, working there, there was a problem, and it wasn’t being solved well, I figured I could go out and do it. And 15% said it was a problem a friend or relative was experiencing.
Of the 13% “Other”, most of those were either “I didn’t build this, I bought it, I acquired it, I inherited it, I adopted it.” Or, several people said, “It was a product I saw working but it was being done poorly and I basically copied it and tried to do it better.” It was really interesting.
So, those are the five ways we are seeing. I think there is danger in just scratching your own itch. It’s really easy to scratch your own itch and find out no one else has that itch to scratch. It’s also very easy to scratch your own itch, find out there are ten-thousand other people who have it, but you can’t reach them and sell to them and they’re not willing to pay for it.
There is a lot you have to validate when people say, “I’m scratching my own itch,” I’m always like, “But have they validated the next two or three steps?”
Scratching your own itch is a good way to like generate an idea but it’s not validation of the idea and that’s a whole other step you need to do after that. I love this idea of targeting a competitor who people hate.
Like I interviewed the guys from Honey Badger, and I think they were competing with this company Hoptoad. Or like Hoptoad existed and it was this air tracking for your app. So, if you build a website you want to know if there’s bugs in your code, and when users run in to bugs you don’t want them to have to report them, you want an automated email that is going to tell you or a dashboard you can go to and be like, “Oh, so-in-so ran in to a bug on this page.”
But it sucked. Somebody built it and they sold it and the person who bought it sold it again. It just fell into disrepair and everyone hated it. And so, for the Honey Badger founders it was kind of like scratching their own itch because they were using it too and they hated it.
They could also see that number one, this is a validated product and lots of people are using it, in fact the company was big enough to be bought and sold several times. So, you remove both the competitor risk and the customer risk. Like the competitor sucks so you can beat them, and the customers are already there. They’ve been validated by the existence of the competitor.
I love the idea that you can find a place where people are really complaining about something and build there. I’ve also seen situations where people aren’t complaining about something so much as they’re just not super happy with it.
So, if you look at the job search industry where developers are trying to find jobs at companies and companies are trying to hire developers. No one has ever been like, “This is the last word in hiring and interviewing developers. We’re so happy with this tool, we’ll never use another tool.”
Every year there are new tools that come out and people have their own different approaches. There will never be just one winner-take-all product in that market. Same with education, no one is going to be like, “This is the school to end all schools and we’ll never – everyone is going to go to this school, and no one is going to any other school.” Or “Everyone is going to read this book, and no one is going to read any other book.”
So, these industries where people aren’t overjoyed with what exists, even if they aren’t complaining, can be an interesting place to look to eliminate both competitor risk and customer risk.
Yeah, I would agree. There is a reason there is so much HR software coming out is that it’s not a solved problem yet. No one has nailed the job search to your point. No one has nailed remote employee happiness. There is 15Five and there is a bunch of other tools but it’s a really challenging problem to solve, I think.
Some of them are really idiosyncratic. It’s impossible to nail the best way to teach somebody how to code because everybody learns in different ways. That is really good if you are an Indie Hacker trying to get started because it means that you’ve got it validated that people have this problem, but no matter what, there’s always going to be space in the market for you to do things your own way and target some niche of customers who prefer it slightly differently.
I would agree.
So what do you think about the importance of being early to a market? Because, again, you have invested in a ton of companies and they’ve gotten started in different ways and in my own experience with Indie Hackers would in no way be where it is today if I wasn’t early to doing what I was trying to do. But Indie Hacker is not a SaaS company. How important is it for SaaS companies today to be early or first to their markets?
It’s amazing if you can do it. It’s a lot of luck or a lot of trying a lot of ideas and landing on one that works. Coming back to Josh from Baremetrics he was early to the Stripe oAuth analytics. He took off real quick in terms of the MRR growing. But he had three or four apps before that that never got traction and he just kept putting them out, putting them out, putting them out and finally hit one.
I’m not sure I’ve ever seen anyone be early to like three markets. It’s just too much of a luck shot because think about being early in WordPress, for example, meant that you were launching stuff between 2005-2008. That was early and it was really not clear that WordPress was going to be the winner among all the competitors because WordPress was forked from another – there was Joomla, there was all this other stuff going on.
Being early, I look at the Jamstack which is like static site generation today, if you are going to be early to that space, maybe if you are building a form endpoint you need to be out like 2-3 years ago and if you are building advanced CMS capabilities you need to be doing it today.
There is a huge amount of risk to that. You and I can go build a CMS and take six, nine, twelve months. Is static site going to grow like WordPress? We don’t know so that is the risk you take. There is the customer risk, not competitor risk. It’s market risk or its wave risk. Is the wave actually going to get big? Or is it always going to be 2-3% of the internet using it and you’re never going to get traction?
I would love to be early. I’ve never been early to any market. Either it’s a skill or it’s luck and I’m not sure which of those it is.
It is interesting, too, because even if you are early it’s not necessarily a recipe for massive success. You can be the first and you can get it all right and be a super smart innovator who sees this wave coming and build a product and start acquiring customers before everybody else and you can just get the problem a little bit wrong.
Or you get the shape of the wave a little bit wrong and somebody else comes along and they learn from all of your mistakes and they eat your lunch. And it turns out being early wasn’t super helpful you just sort of proved out the market for everybody else who then capitalized on your mistakes.
We’ve seen that happen several times.
When I think about what companies actually succeed from being early it is often companies with network effects where it doesn’t really matter what you do as long as the quality or the value of your product is directly proportional to the number of people using it. And you’re getting people using your product before anybody else does then it’s really hard to assault your position.
The earlier you are the more important it is to build some sort of moat and there aren’t that many moats in software. If you build a super technical product, guess what? Somebody else is going to come around next year and they’re going to have better developers, better tools and they are going to build the same thing you did way faster than you did.
I wonder when you look at your companies and they’re all SaaS tools, do you think about moats and do you think about if they are early to the construction space? Or they are early to the healthcare space? What is to stop other companies from coming in and doing the same thing?
Of course I am aware of moats and I think about them, but with TinySeed we don’t invest to have these billion-dollar outcomes. And so, there is a lot of room to build a lot of 5-30-50 million-dollar companies. You don’t need as large of a moat.
If you are going to winner-take-all you need a moat. If you are going to build a 10-million-dollar SaaS app there are so many spaces where you can do that. With that said, oftentimes the moat is not what we would traditionally think of or not what Silicon Valley would consider as the moat.
Oftentimes just having a founder that is a subject matter expert with deep industry knowledge and a co-founder that is a really good technical founder, and you have a two to three-year head start on anyone that is not a moat in the traditional sense, but that is an advantage and it’s a head start in a way that even if you took people who didn’t really know what they are doing and gave them five million in venture capital, they wouldn’t catch them.
How many venture-funded ESP’s, email deliverability things did we see crop up? I can tell you a lot because I was running scared as we were running Drip. And yet there were four or five of us in this closet, bootstrapped in Fresno, and we were in the top ten marketing automation providers.
It wasn’t because we had a bunch of money. We didn’t really have much of a moat aside from integrations and some brand equity because Drip started to get a name. We were just ahead of people and we cared more, and we probably had a little more industry knowledge because I had been doing email marketing since 2005.
Of course, we would love a moat but a lot of times you look at DocSketch, I’ll bring him up again, Reuben Gomez. He doesn’t necessarily have a moat, it’s e-signature, electronic signature which is a commodity at this point. His moat is that he is a really good marketer. He takes these channels and to try to beat him at SEO, content marketing, lead generation is very, very hard.
How many people in the world are better at Reuben than these things? I don’t know. There are probably hundreds but what are they working on? Are they working in the e-signature space? You don’t have to be the best marketer in the world, you just have to be better than the people that you are competing against.
And again, it’s not winner-take-all. So, what if you only take 5% of the e-signature market? Still, it’s quite large and big enough to build a really profitable and life changing SaaS company.
The last trend I think that’s worth talking about is this idea of the micro-SaaS. I did a Tweet, it was kind of a poll a few weeks ago asking, “Here are a few different industries, a few different trends. What are you most excited about?” Micro-SaaS won, hands down.
The micro-SaaS is the idea that you are targeting just a super niche market, a company that is usually run by a solo founder or very small team not hiring an army of people. You don’t care entering some winner-take-all market. You don’t care about being a unicorn. You’re happy making 10, 20, 50 grand a month and resting on your laurels there. Maybe even growing further from there and figuring out what the next step is.
It’s obvious why this is inspiring to a lot of people because people like taking these baby steps that are meaningful life changes for them and they don’t need to jump up to 1,000X their salary right now, they are happy jumping up to 5X their salary. That is a huge life-changing event.
Just to give an example of a good micro-SaaS company, there is Jordan O’Connor who I really need to have on the podcast because his company is super cool. He’s got this company, Closet Tools. He was kind of motivated by being in a ton of debt from college. He had like 100K in debt from college.
Three years ago, he learned how to code, two years ago he made his first sale from Closet Tools and now two years later he is doing 40 grand a month in revenue as a solo founder with no employees which is amazing. He did this while he had a full-time job. He’s married, he’s got two kids and he’s a solo founder.
It’s one of the more impressive ideas of a micro-SaaS story. Closet Tools is basically just this browser extension you install that helps you make sales on Poshmark which is this social commerce marketplace where you can buy and sell your clothes.
So, he is helping consumers make money and attaching himself to this much bigger platform and he’s able to carve out this really small niche and a pretty good living for himself.
So, what are you seeing with micro-SaaS and is this something that as an investor, is it even interesting to you? Because maybe these companies can’t get big enough to be investable?
First of all, I’ll say I love micro-SaaS. I invented the term “Micropreneur” back in 2009.
SaaS was just coming around, I wasn’t going to say “micro-SaaS” because it just wasn’t a thing yet, but my whole thing was I want to be a solo founder and run these really small software companies that throw off a ton of income and its net-profit.
I had one small SaaS app then. I had HitTail which was a SEO key-word tool that was just me and a couple of contractors. It was doing 20 to 30 grand a month at its peak. Drip was originally going to be a micro-SaaS. It was going to be me and one or two other people and of course we got into a space where it became very competitive and I had to ramp up.
I love the idea. I love going into a tight niche. You read my first book Start Small, Stay Small A Developer’s Guide to Launching a Startup, is all about find niches, there is power in niches, no one is there.
It’s so much less competitive. You don’t have to be as good a marketer, you don’t have to have all the chops because you can just go in. And back in the day I was talking about launching a lot because the book was written in 2008-2010. It was a lot of like, there was some subscription but a lot of one-time sale stuff. SaaS is just the new one-time sale. It’s software, it’s all software.
Yes, love the idea. Two, did it myself. Three, wrote a book essentially about it, before it was called this. So, I’m a fan. I think there are a ton of advantages to it and frankly if you read the first two to three chapters of the book, you’ll hear all of my thinking about why I think it’s a great step one or step two business in the Stairstep approach. It’s so much less competitive and you can get traction.
As an investor, to your point, we tend to invest in apps we think can hit seven figures in annual revenue and usually it’s one to three million bucks is going to a floor for us. Just because if we’re going to put in money at X valuation, something that gets to half a million dollars or eight-hundred thousand in revenue, that’s a great business and it can throw off some cash, but it doesn’t necessarily – it’s maybe, you’ve heard this term, it’s maybe not an investible business. You just shouldn’t raise capital.
Maybe someday there will be a fund that launches to try to invest in micro-SaaS. There is a challenge there in that I think you’ll have to take too much equity, or I think the terms would have to be so founder unfriendly and these mirco-SaaS’s are so easy to launch. I say “easy.”
They are not that capital intensive if you use no coder, if you are a technical founder then I would encourage you to maybe don’t do it with investors the first time. Do it on your own, get out there, get into a community to have support. Get into a mastermind to have support.
Taking investors for what you think is going to be a small app, I almost think you should just learn it, get the experience, get the cash. They are so profitable. You can have 80-90% net margins. That is what HitTail was, 85-90% net margins, it was so great.
Those are my thoughts on it. I love that this exists. I keep saying this is the best time in history to be a startup founder or to be a developer who knows how to market. Maybe ten years ago it was less competitive, but the tools weren’t as good and with the advent of EC2 and all this stuff it is so much easier to get started.
Is there a path from a micro-SaaS to a full SaaS? Do you see companies that are generating eight figures in revenue and they started off with something that didn’t seem like it would get much bigger than seven figures?
I would say Drip started that way. Drip was just going to be a micro-SaaS that was just an email capture widget and then we added autoresponders to it and then we were like, “Oh, we should just become and ESP, that is a great space,” and “Oh, now we should become marketing automation”, and then we grew, grew, grew.
We sold it obviously before we hit eight figures in revenue. But I also think, I don’t know that you need to turn – I sold HitTail when it was doing in the 20K. I could have just starting more SEO stuff on. It was a long-tail SEO keyword tool. I could have added all the functionality of Moz or Ahrefs, just started stacking that on and turned it into it.
It turns out I just wasn’t that interested in the space and I was off doing Drip that way. So, yes, I think you could take a micro-SaaS potentially. It depends on the niche, depends on the what the app is. I also think there is a huge advantage to having this asset that is throwing off a bunch of cash to help you maybe launch the next one that you may be more interested in, maybe in a more competitive space.
Maybe taking advantage some of the things that we said earlier. Or some people want to, some people don’t, you can exit these things because they’re immensely profitable. If you have an app doing 20 grand a month in net profit which for a micro-SaaS, I’ve known several that do that. 20 grand a month, that is almost a quarter million a year.
You can get just under in the 4X net profit range, you are selling for almost a million dollars in cash. And if you’ve owned it for more than a year that is long-term capital gains so you’re not paying income on that. You are paying long-term capital gains which is smaller.
You’re walking away, depending on the state you are living in, let’s say with seven to eight-hundred thousand dollars in cash. That is a hell of a way to angel invest yourself to friends and family fund yourself in the next thing. I’m just saying these are the options. You can turn your existing app into it or just use it to kind of fund or give yourself the freedom to launch that next thing that you are interested in doing.
Another example that is not quite micro-SaaS, but I do think it fits in this category of being something that is trying to avoid the competition, not going for world domination but just trying to find a market where you’ve got this natural moat by niching down or these real-world businesses where it’s not just pure code but you’re selling to a local area.
I had Sam Eaton on the podcast. He has a company called Crave Cookie where him and his sister were like, “Let’s bake cookies and sell them to people in our town.” And they’re doing like one- hundred to two-hundred grand in revenue a month with 50% margins with a cookie delivery company in, like, not even one of the biggest cities in California.
It’s pretty remarkable to see. He’s writing a lot of SaaS, he’s doing his own internal delivery tools because he doesn’t want to use Uber Eats or any of these other services that just crush restaurants with their crazy cuts of revenues they take.
They’re able to grow through word of mouth, through PR with local media. They aren’t like, “We need to get to the top of SEO or Google or outbid everybody on these Facebook ads.” They’re like, “No, no, no. We just need to do cool stuff to get in, like, the local news station,” which is way, way easier than this global competition. What are you seeing with companies that are basically building with a foot in the real world? Is this a trend that you think is sustainable or is it even something on your radar?
I’ll say that it’s not something that we have tended to invest in because often times having something in the real world means that the margins are lower or that it is more capital intensive. I’m almost thinking of manufacturing your own device, hardware device or something and I just don’t have expertise there.
But absolutely, the moment subscription boxes because a thing, whether it was subscription meal kits to subscription Loot Crate type things for every Star Trek and Star Wars and Dungeons and Dragons to the organic food movement and the slow food movement, and the more natural health movement and fresh food movement.
The CSA’s, Community Supported Agriculture, all of that getting internet enabled is incredible. And, yes, absolutely it’s a trend and I think that the advent of these pop-up kitchens as well, have you heard about— where you can just.
Yeah, cloud kitchens.
Yep, you and I can just rent time in a commercial kitchen. This was not possible 5-10 years ago or it was really hard to do and now they are all over the place.
There is a place called The Food Corridor that is SaaS for Cloud Kitchens, selling picks and shovels to these kitchens and I think that shows that this trend is not going down because I’m going to want to buy my artisan cookies from my local purveyor of cookies rather than go to Whole Foods or go to Fresh Time or whatever, and get something that has been sitting on a shelf for even a few days. So, yeah, I think the more we can get back to those, what is it? There is, it’s this artisan, it’s this free-range, organic, local.
Bespoke. It’s a big trend and I think it’s cool because it’s adding more personality and individuality to business, it’s no longer that everyone wants the McDonald’s made-for-everybody experience. People want the more individualized experiences.
In a way, even though these aren’t directly tech businesses, they are more like tech enabled businesses, the tech part of it helps them niche down because you can find them online. You can find them on Instagram, there is an infinite number of distribution channels and there’s no gatekeepers as there were 30 years ago before we had the web.
I’m excited to see this and I think your insight that people are building SaaS businesses for Cloud Kitchens ties into what you were saying earlier which is like, “Hey, you don’t actually have to be the original innovator tor here. You can just build technology for other companies that are innovating.”
When you see a shift in the market, if you are trying to catch a wave, perhaps you see people are starting more of these businesses so you figure out what is the tech-only SaaS business that you can build to support them?
That’s another good framework to think about. I think of the Loot Crate subscription boxes, there are now several SaaS's that just help you manage that. I forget what they are called off the top of my head, but it’s software to do that.
Any of these new movements, that is something you can jump on board.
Totally. Picks and shovels. The risk is that maybe the movement doesn’t take off, maybe the movement only lasts a year, whatever. But that is the risk you take. There is always a risk with launching a SaaS.
Finally, I promise this is the last topic. You are running a company where you are investing in bootstrappers. This is not something that when I started Indie Hackers four years ago, I thought was going to come to pass, it is pretty new. The whole model, as I understand it, is very dependent on being able to have a high hit rate.
Traditional venture capitalists don’t care as much about having a high hit rate because there are such out-sized gains from these unicorn companies that take over these winner-take-all markets that they can cover the losses of all the other companies that fail.
So, they try to drive you towards moving fast and breaking things and hiring as fast as you can. They don’t really care if you have a binary outcome where you’re either going to succeed wildly or fail.
Whereas, with what you are doing, you don’t necessarily push people to go that hard which is great and makes it attractive if you are an Indie Hacker minded founder, but also that makes it harder for you as an investor because you need almost all of the companies you invest in to succeed in order for you to get your money back.
So, the question I have for you, is this working? Is this a trend we are going to keep seeing? Are investors like yourself figuring out new ways to invest in these previously uninvestable, slower- growth tech companies?
I think so. When we launched TinySeed in 2018, the only fund that was doing anything even remotely similar, and we have quite a few differences, was Indie.bc. We announced TinySeed and we actually said in that announcement, “We expect more to follow because this is a wave that is an underserved iceberg in the software industry.”
Within the last three or four months I think I’ve seen three or four funds launch with similar hypotheses. Maybe not exactly, but it’s a lot of people starting to look at this. The non-venture track stuff, the non-traditional VC.
So, yes, I think the trend will continue. So far is it working? Yes, based on revenue growth and internal rate of returns and calculations. Early signs are that are models are accurate or under predicted. We had a worst-case, best-case and a middle-of-road and we are definitely above middle-of-the-road 16, 18 months in.
That’s the thing. It’s capital efficient, they’re ambitious, capital efficient SaaS companies. They have recurring revenue, there’s a lot of proven channels, there are play books and blueprints to do this and you’re right, we don’t need that Dropbox, Facebook, or Google. We’re probably not going to have the Uber, any of those companies.
But the hit rate on these companies from my experience from watching these companies for the last ten to fifteen years and launching a couple of my own, it is so much more a repeatable approach to launch this one to 20 or 30 million-dollar ARR company.
I think it is the best time in history because we have options now. If you are an indie hacker and you don’t want to deal with taking one-hundred 20 thousand dollars from TinySeed being part of the batch that is cool.
Then do what we’ve always done. Or if you want to go venture, then go do that too. I think that is the big kicker of investing in bootstrappers, we, and I think some of the other funds, really want to keep some of your options open.
That is what I wanted when we were growing Drip. I want some funding without the strings attached. I want to raise one-hundred or three-hundred thousand dollars without having to then raise a Series A, B, C and have an IPO. I still wanted to maintain control and maybe be able to take out dividends and exit for millions or tens of millions but not have to become a unicorn and to have that not be a failure.
That is really the goal and the shift. Shift is too strong because it’s not like venture capital is going away, it’s just another option in between. There is bootstrapping, there is venture capital and then there is this independent funding or whatever term we want to come up with.
I call it bootstrappers and mostly bootstrappers. Because a TinySeed company that takes 120K is still mostly bootstrap because they are extremely capital efficient, and they are really just a bootstrap-run company.
They are not suddenly going out and having launch parties and hiring 20 employees. They are still using that capital to grow in predictable fashions.
I’m pretty excited about the whole ecosystem and in particular what you are up to. I think we are headed toward a world that is looking very different than it did 20 to 30 years ago. I think it is increasingly common for people to kind of build things and get rich and control their own fate as Indie Hackers and founders or just creators using platforms built by others.
It’s pretty exciting to see that this funding model can actually work because that just means that it is going to be easier, another avenue for people to actually get into this. I’m hoping ten years from now we look back and the world is completely unrecognizable, and we are wondering why so many people worked jobs they hated in the past rather than just getting online and being a creator of some sort and figuring out how to build a successful business.
I think people who are getting started now might feel a little bit late to the game. They may feel like SaaS is competitive and crowded but I think what this conversation has shown is that it isn’t. There are a lot of different ways to start and, again, ten years from now, people who didn’t start now till think, “Oh man, that was the Golden Age. I really should have started in 2020, that was the best time to start.” Which is what they are saying now about ten years ago.
It’s what they were saying ten years ago about ten years before. That trend is never going to end. So, Rob, thanks a ton for coming on the show and letting us know what you are seeing in the market. Can you let listeners know where they can go to learn more about what you are up to at TinySeed?
Absolutely. If you are a founder and you may be interested in applying for our next batch, we should be opening applications in January of 2021. Head to Tinyseed.com and you can get on the email list and we’ll let you know.
If you happen to be an accredited investor and are interested in investing in early-stage SaaS, we are raising fund two right now and that is a way to take an investment and invest it across hundreds of early stage B2B SaaS companies. You can see an example of the 23 we have invested in so far at Tinyseed.com.
Our whole investment thesis is about the value of this space and how much we want to raise all the boats in essence. Tinyseed.com/thesis if you might be interested in doing that.
All right. Thanks again, Rob.
Absolutely, sir. My pleasure.
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