A common question I get from aspiring founders, is how to find and then validate product ideas for new B2B SaaS products. Over many such calls, I started to flesh out a mental model for how I would approach coming up with a new product idea for B2B SaaS, and I use this framework when having those conversations with founders.
I had a lot go right for me with my last company, Gymdesk, and much of it is thanks to accidentally picking the right product to work on.
After going through the TinySeed accelerator and seeing hundreds of other early-stage SaaS products, as well as exiting the company and seeing the levers that matter the most there, I can identify some of the reasons we had an easier time than most.
The framework for validating B2B SaaS ideas is built around 5 core concepts:
- Use your existing domain knowledge
- Businesses are the best customers
- You don’t need to innovate, but make sure you can differentiate
- Optimize for product stickiness
- Hyperfocus on niches (Vertical SaaS)
Following those concepts should give you a good start from which to work out potential product ideas, with a strong path towards profitability (and thus a good fit for bootstrapping). Let’s dive into the details:
1. Build around your domain knowledge
This one is a no-brainer, but it seems many people miss out on this. Building in an industry / vertical you are intimately familiar with, either professionally or recreationally, puts you in a much better position to make the right decisions with regards to the problem you want to solve, and the product that would solve it.
There are levels to this approach – it doesn’t mean you need to be a 10 year veteran professionally in an industry to build for it (though it would be an excellent starting point). For example –
- Level 1 – You are a former architect building a product that solves a problem you encountered every day.
- Level 2 – You are a former service provider that also served architects, building a product that solve a specific interaction you had with architects on a regular basis.
- Level 3 – You are a homeowner that used an architect to build your first home, and had a long term engagement with one over 18 months. You are building a product that addresses a flow you used with the architect during that time.
All of those have some sort of domain knowledge applicable to the use-case they experienced. This domain knowledge would serve as the basis for the intuition founders need when making early product decisions.
It is still possible, but more difficult to build a product that solves a problem you only know in passing, and don’t have significant experience dealing with it over an extended period of time. Building in an industry you are well familiar with allows you shortcut a lot of “rookie” mistakes that industry insiders would know to avoid intuitively.
Founders with a strong intuition make the right decisions 80% of the time and quickly change course when they make a mistake. Non-intuitive founders make the right decision only 40% of the time, and are slow to react to mistakes.
Rob Walling, founder of TinySeed (B2B SaaS Accelerator)
Though there is some benefit to approaching a problem domain without prejudice borne from experience, in my opinion the benefit of having that initial intuition is much more valuable.
Another benefit to having industry experience, is that usually you would have some contacts or know of potential customers in that industry that you could talk to, to help with initial idea validation. Having a common language when having discovery sessions with those people significantly increases the value you’ll get out of it.
But what, you say, if you don’t have any experience in any industry? In that case, I would highly recommend to go work at a high pace environment for a few years, to gain some experience to build on. It’s really hard to build something new without any kind of real-world experience to rely on (though it is possible).
2. Sell to businesses
And not consumers, or “prosumers”.
The title says “B2B” for a reason. If you want to make your life easier, try to make sure your product addresses issues faced by businesses. Not issues in people’s daily lives, or with their hobbies. And ideally, businesses with at least a few employees (so not sole-proprietors either)
B2C is notoriously difficult for a couple of very important reasons – price sensitivity and high churn rates. Both of those factors are crucial for creating a product that can both grow at a reasonable pace, and scale beyond a certain point before churn cancels out growth.
Businesses with 10+ employees typically already have significant enough revenue, that the cost of mission critical software is much less of a concern. It still is a concern to a degree – but you’re able to charge an order of magnitude or more compared to what you can with consumers or single-person operations.
If you can’t comfortably charge at least $50 for your lowest tier plan, you’re going to have a hard time scaling up. It doesn’t mean you can’t build a nice side-project in those areas, but you’re setting a pretty low ceiling on its business potential.
Along the same lines, if you have ideas (=domain knowledge) in multiple verticals, I would pick the one where you can charge more. It’s easier to build serving larger businesses, that are more stable and less price sensitive due to to the economies of scale, and their buying decisions are driven more by logic and less by emotion.
This is one of the things that we struggled with at Gymdesk initially, where at the lower end you have many single-operator businesses, that are very price sensitive and often go out of business. We made an intentional effort in the later years to move upmarket as a result, and it was a major catalyst for our growth.
3. Differentiate instead of innovate
If you come from the startup world, where founders are constantly trying to “change the world” and build billion companies, you might be looking too hard to build something that’s completely new.
Competition is actually a good thing in B2B, for various reasons –
- It shows there’s a market for your product. When you look at the biggest players in a vertical, you can have a good sense of how big you can get potentially.
- Competitors already built the market segment, educating customers and creating awareness for it. It’s then relatively easy to frame your offering against existing products.
- With the vast majority of B2B segments, existing incumbents are outdated solutions that no one likes. Usually there’s a gap you can exploit with your product.
You don’t need to invent a new product category from scratch, like AirBNB and Uber did for house and ride sharing respectively. It’s enough to hone in on a specific pain point with an existing product that generates a lot of revenue, and address it to start syphoning customers.
B2B is often called “Boring” for this reason, but it’s also one of the reasons why it’s the easiest business model to succeed in.
There’s a caveat here in that some product segments are already highly saturated with little differentiation –
I was speaking with a founder the other day, who was building an uptime monitoring tool. There’s a ton of existing products in this space, and it’s such a simple use-case that it’s hard to differentiate.
We were able to come up with a plan to break away from the pack of similar products, by targeting specific niches with more advanced monitoring needs. But in general I would recommend picking a product segment that you have a clear vision of how to differentiate there.
4. Optimize for stickiness
Try to focus on products that are integral to the day-to-day workflow of your target audience, rather than products that have occasional / seasonal / on-demand use.
This will have a major effect on your churn-rate – the stickier the product is, the less likely a user is to churn out unless the product disappoints them in some way, or they go out of business.
This is something I learned by experience with Gymdesk – by building a complete business management solution, we integrated deeply into the day-to-day operations of running our customers’ business.
As such, migration costs are high, and users would rather avoid it in most cases. And as long as they keep running their business, they need our product. Our churn rates have always been low as a result – averaging around 1% logo churn a month.
Low churn is one of the best ways to guarantee long term growth. As your revenue increases, you need increasingly more leads and customers as the churn inevitably catches up with growth.
5. Hyperfocus on a specific niche (Vertical SaaS)
This is somewhat of a continuation of point #3, as it’s much easier to differentiate when focusing heavily on a specific vertical than when trying to go broad with a horizontal product (a product to service a specific function for all companies).
If you’re trying to do everything for everybody, you end up doing nothing for nobody
Focusing on a businesses in a specific vertical allows you to really tailor your product flows to their specific use-cases. This creates a much stronger selling proposition when compared with more general use products.
This is another element I stumbled into by mistake with Gymdesk – initially, the product’s name was “Martial Arts on Rails”, and it was 100% focused on providing management software to martial arts schools. Over time users from other, adjacent verticals (gyms, yoga studios, etc) also signed-up and we learned the intricacies of their use-case organically.
This allowed us to really stand out in the martial arts vertical initially, and later take the same playbook and apply it to similar yet slightly divergent use-cases. Starting with trying to build for everybody before nailing down one of the use-cases, would probably have resulted in another same-y product in the market.
Another thing to consider is the limited resources you have as a bootstrapped founder. Hyperfocusing on a narrow niche allows you to make progress without overextending yourself over multiple different customer segments and use-cases.
Putting it together
I used a lot of words above to basically say – the best bootstrapped products ideas are those that sell to businesses in a vertical niche where you have domain knowledge in, are sufficiently differentiated to current offerings and are core enough to the day-to-day operations of those businesses that they’ll be willing to pay for it over a long period of time.
Those are just general guidelines to help you pick product ideas that have higher chances of growing into a viable business. It does not mean that there are no opportunities outside of those guidelines.
But if you are lacking in direction, or are debating between several half-baked ideas, this is a good framework to run ideas through to see if it would make sense to build.
