This summary outlines an approach to finding and validating a bootstrapped B2B SaaS1 business. The focus is on creating a sustainable business with a small team or as a solo entrepreneur, without the need for outside funding, with realistic revenue potential, high profit margins, and in a targeted niche market.
The text is a summary and synthesis of multiple sources, all of which might not be explicitly mentioned, because I might have forgotten where I got the idea from, or the same idea might have been mentioned in some form in multiple sources.
My goal is to build a bootstrapped SaaS business that can generate a life-changing income. This text focuses specifically on starting a business that I believe can best fulfill my personal goals, though I recognize that everyone's definition of success varies.
For me, a life-changing amount of money means enough for me and my (future) family to live comfortably where we want to with economic freedom. This could translate to:
To factor in operational costs, particularly staff: With 3-4 full-time equivalent employees at approximately 250,000€ total annual cost, the business would need to generate:
A slightly leaner operation with 1-2 full-time equivalent employees at 105,000€ annual cost would require:
Walling4 has said that recurring subscription revenue is a "business cheat code" that every business aims for. In SaaS (software as a service), recurring subscriptions are the norm.
B2B5 businesses generally offer several advantages over B2C6 models. Walling has noted, that investment funds like his TinySeed typically don't invest in B2C or B2-prosumer7 companies.8 This preference exists for several reasons:
Business customers are typically less price-sensitive than consumers and demonstrate lower churn rates with higher average revenue per user (ARPU)9. Higher ARPU generally opens new marketing channel possibilities. In the B2B space, companies can command higher prices for similar software development efforts. The primary trade-off is the more limited total addressable market (TAM).
This disparity mainly stems from the nature of B2B and B2C software. An enterprise resource planning system (ERP)10 represents a more mission-critical investment that's harder to abandon than consumer applications like recipe books. Consumers are used to very well-made and feature or content rich software-based services at a low-price point, which is possible by very large audiences with similar needs (e.g., Windows, Netflix). Businesses often have more niche needs, and they are ready to pay for a relatively simple software product if it fulfills a real need and has a clear time or money saving promise. Additionally, B2C customers often require more support relative to their lifetime value.
By choosing to bootstrap rather than seek venture capital implies:
The ideal target market is one that's too small and specialized for venture-backed startups but large enough for my financial goals. I assume this sweet spot often exists in overlooked industry verticals or in solving specific workflow problems common across different types of businesses.
When considering business models, vertical approaches often prove more advantageous for bootstrapped B2B SaaS companies targeting the $1M to $100M range.11
Horizontal businesses serve a large, generic audience (examples include Slack and Notion). These markets tend to be more competitive due to their larger TAM12 and may experience higher churn13 rates as customers have more alternatives.
Vertical businesses focus on specific, targeted markets (such as a CRM system designed specifically for dentists). These niches generally face less competition, and the competitors they do encounter are typically less sophisticated. This creates opportunities to outperform existing solutions through better marketing or product implementation. Since the software becomes an integral part of customers' operations, it tends to generate lower churn rates.
Orthogonal businesses serve a specific role or position across various companies (examples include GitHub and Semrush). These share many favorable characteristics with vertical businesses that make them suitable for bootstrappers.
I think the key insight from comparing these approaches is that optimal software products for bootstrapped founders often possess these characteristics:
While market categorization provides useful guidance, it shouldn't be followed blindly. The underlying principles are what matter most, rather than strict adherence to a particular classification.
An important consideration for bootstrapped businesses is avoiding dependence on factors outside your control. For example:
Your business will have better chances of success if you:
These factors influence your ability to understand customer needs, create appropriate solutions, and maintain the motivation required for sustained effort.
When establishing a business, it's important to consider your personal working style, strengths, and preferences. For instance, some founders might prefer avoiding cold calls and high-touch sales processes. Some might be comfortable handling enterprise customers and their complex requirements, while others prefer self-service models14 with minimal direct interaction and are willing to accept a lower ARPU as a compromise.
Technical preferences also matter - some founders might want to avoid businesses requiring extremely high reliability and minimal downtime, as these demand more effort, stress, and maintenance costs. However, these preferences should be balanced against business realities - sometimes accepting a reasonable amount of technical complexity might be preferable to marketing and sales challenges.
The 5 PM framework provides a structured approach to quickly evaluating SaaS ideas. In this evaluation phase, you asses the idea against certain criteria (the 5 P's + M), do some online search, and consider if the idea shows enough potential to warrant further validation work. You can find the complete framework described in the original document.15
The journey to creating a successful bootstrapped SaaS business typically follows these phases:
In this document, I focus on the first two phases.
Finding unsolved or poorly addressed problems is the foundation of successful businesses. Some approaches, as listed by Walling16, include:
As Paul Graham notes: "You can either build something a large number of people want a small amount, or something a small number of people want a large amount. Choose the latter. Not all ideas of that type are good startup ideas, but nearly all good startup ideas are of that type."17 The optimum is something a large number or people want a large amount, but it's unlikely such services aren't done yet and very the space isn't extremely competed. That is, both Walling and Graham have learned that vertical ideas are generally the best.
When searching for ideas, focus on areas where you have some expertise.18 Your judgment is more reliable in fields you understand.
Don't avoid necessary but tedious work ("schleps"). Look for opportunities to solve these challenging tasks for others.19
Rob Walling20 recommends narrowing your focus to target markets with minimal or manageable competition. This approach reduces competition not just for the product itself but also in marketing efforts. Paid marketing tends to be more cost-effective for niche markets, though your target market must still be large enough to support your business.
Christensen et al. emphasize the importance of understanding the "jobs" customers need to accomplish:
Another approach is to examine popular tools and identify user feedback or feature requests that have received significant support but haven't been implemented. This can reveal opportunities for new products.
Early evaluation assumes you've already generated some educated guesses about potentially viable ideas.
The first question is determining what specifically needs validation. Ries22 gives a rule: validate the most uncertain aspect first. For bootstrapped businesses, marketing feasibility and genuine product need often represent greater uncertainties than technical implementation capability. Unless you're attempting a technical breakthrough (which typically demands substantial R&D budgets and specialized expertise), don't start by coding a prototype.
Rob Walling20 emphasizes that for smaller companies with limited marketing resources, "you want a market that is already looking for your product, even if it doesn't exist." Begin by confirming that your market exists, that people are actively seeking solutions similar to what you'll offer, and that the market is sufficiently large. Additionally, verify that you can reach this audience at reasonable costs relative to customer lifetime value (LTV/CAC)23.
Cost-benefit analysis is important in validation: How much effort will you invest to increase certainty, and is it worthwhile? Alternatively, how much time (in expected value) might you save by validating hypotheses before building products or features? Building prototypes often represents a suboptimal validation approach due to the time investment required, but sometimes just building it is the fastest and most reliable way to validate.
Validation focuses on finding shortcuts, creative approaches, and efficient methods. Is there a faster way to validate your assumptions? Can certain steps be skipped or simplified?
One approach to streamlining early evaluation is pursuing concepts with proven success, assuming evidence exists that similar businesses are profitable. This doesn't mean creating exact copies or eliminating validation entirely, but rather creating value through differentiation or superior execution in marketing or product development.
Paul Graham notes that startups rarely fail due to competition, and the feeling of arriving late to a market often signals a promising idea:
Eric Ries's Lean Startup methodology provides another validation framework. The core principle involves creating a minimum viable product (MVP)25 - something that isn't necessarily even a usable product but that enables maximum validated learning about customers with minimal effort. The iterative process includes three steps:
Narrowing your initial target market can prove advantageous26, even for vertical products. Focusing first on a subset of users who are quickest and easiest to convert (early adopters) provides faster feedback, even if their average revenue might be lower. Graham uses a fire-starting metaphor: contain the fire when starting, adding fuel (market expansion) gradually rather than spreading too quickly and potentially stalling growth.
The Value Proposition Canvas27 offers a useful tool for analyzing customers' jobs to be done, their pain points and desired gains, and how your product addresses these factors.
Next, we will use Walling's 2-20-20028 sub-division to discuss early validation steps.
This approach divides idea validation into three progressive phases, each requiring more time (2, 20, and 200 hours respectively) while providing increasing certainty if an idea passes each stage. Full certainty is never achievable, but this structured process helps mitigate risks.28
In this initial phase, spend approximately two hours evaluating each idea. Activities may include:
Paul Graham29 reminds us that "an idea where there is nothing you can do to get going, e.g., because you have no way to find users to recruit manually — is probably a bad idea, at least for those founders."
This phase involves approximately 20 hours per idea. The more positive signals you gather from different validation methods, the better. Select validation approaches that align with your expected marketing channels and sales model (self-service, low-touch, or high-touch enterprise sales).
Use any advantages you might have, such as existing contacts or audience access.
Methods include:
Landing Page Validation:
Verbal Commitments:
If results don't look promising, return to earlier evaluation stages or generate new ideas.
Paul Graham29 emphasizes that early-stage founders need to do things that don't scale, including manually recruiting initial users. Startups are initially fragile and require substantial non-scalable effort to grow. Providing exceptional, personalized service should be a competitive advantage for new startups compared to larger companies.
Prioritize marketing tactics using frameworks like the ICE method31 to focus efforts effectively.32
Building a bootstrapped B2B SaaS business represents a challenging but potentially rewarding journey. By following structured approaches to idea generation, validation, and execution, founders can significantly improve their chances of success. The key is to remain methodical, learn continuously, and persevere through the inevitable challenges while maintaining focus on delivering genuine value to well-defined customer segments.