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Rungs and Ladders Part 1 (23/30)
I'm writing 30 posts in 30 days. This is number 23.
Have you ever noticed how you find a goal too difficult initially, but right after you break it down into a string smaller steps, you immediately think it’s easier? So this is me trying to do that in the next two posts. Part 1 (which is this post) is an overview of where I am, where I want to get to (the big hairy goal), and what are the tentative stair-steps I want to get from A to B. Two useful ideas I’m borrowing liberally from are Nathan’s ladders and Rob’s stair steps.
As for Part 2, which will be the next post, it is more about the possibly wrong assumptions of those two approaches and influenced by the analysis I perform in this post.
Where I am
I am based in Singapore 🇸🇬. Therefore, any formal analysis about the software business ideas I want to pursue have to be based in the reality that is the living costs of Singapore. Feel free to ignore the specific numbers here but probably you can reuse the principles and apply to your city/country of residence for analysis.
I actually did a more extensive writeup in a /r/SaaS thread of my costs living in Singapore, but I will repeat the main points.
Ensuring a stable revenue is crucial as I'm based in Singapore and the costs of living are pretty high. They range from monthly ~SGD1,200 (900USD) on the cheap side, midrange is ~SGD2500 (1,900USD), and high end is ~SGD9700 (7300USD). [See Source for these numbers] My costs are around the midrange, depending on the time of year. I made the mistake of ignoring my personal living costs before. Therefore, whenever I go low in cash, I frantically accept any work. Which leads to a vicious cycle as frantic acceptance of any work means accepting low paying gigs and less time to wait out for better opportunities. Now I'm calmly in the course of correcting this.
My revenue for my solo ISV (Independent Software Vendor) is divided into 3 buckets:
the salary I pay to myself
the regular business expenses (licenses, software subscription, accountant, taxes etc)
any left over is profit
I have now reached the stage where my revenue for 2021 and 2022 is more predictable. I should clock ~SGD10,000 (7,500USD) MRR (or 92,000 ARR) starting 1st Jan 2021. The payment terms is about 60 days, so I actually won't start seeing this until March 2021. Previously, I clock ~SGD8,000 (5,600USD) a month of revenue for about 1-2 years. Money was tight.
Where I want to go
In other words, a 1 million ARR software business.
If you were to ask me to rank my deepest desires in descending order, it would go roughly in this manner:
own and run a successful business
that business is software related
that business exceeds 1 million USD ARR
Technically speaking, I would settle for a non-software business that meets 1 and 3. But, it wouldn’t feel completely right. Being completely honest, I would most probably take the profits of the hypothetical successful non-software business and plow it into making a software business. Clearly, my truest desire should be a combination of all 1-3. In other words, a 1 million ARR software business.
My current micro ISV business is focused on Workflow Automation specializing in Quote-to-Cash for businesses. I’m at the stage where I am break-even profitable, ramen-profitable with a single paying B2B client. The weird thing is even though there is only one paying party I deal with, the system is actually used in two separate business units in two different countries. During support, it feels like I’m doing with two different client because of different workflows.
Yes, in B2B, unlike B2C, the decision-maker, buyer, and user can be different parties. The unfortunate situation about this successful customized system is that it’s not easily resellable and reusable.
Often, I am better at being rational for my friend’s problems than at my own. So if I were to pretend my situation is that of a dear, old friend’s, I will make the following analysis.
Essentially , there are only two general options to grow a 1 million ARR software business from the existing situation:
Take that already successful customized software and make it more resellable
Put that customized system into maintenance mode and build a different system and software business instead.
Even under 1, there are other sub-options I can choose. The other sub-options (which I will label as 1.x) under 1 include:
1.a Find the industry peers of my current B2B client and sell to them.
1.b Since the customized system is used in two different business units of the same MNC, find the other business units of the same MNC and sell to them.
Regardless which approach I adopt, the key issue is that I’m spending a significant amount of time to maintain and add more features to the existing system. This has both good and bad points. If there were no demand for the system across the different endusers at the current client workplaces, they wouldn’t make more feature requests. On the other hand, the more feature requests I add, the more customized the current system becomes, the harder the system is resellable.
What about building a separate software business aka the option 2? For that option, I lean towards a micro-SaaS on the cloud. Right now, the customized system I built is heavily customized and deployed on-premises. Best to increase my evolutionary chances of success by putting my eggs into different baskets with different implementation details. I apologize for the mixing of different metaphors.
Again, I’m thinking this with sub-options like in Option 1 analysis.
Option 2.1 is option 2 but takes option 1 for inspiration on features and customers. Extract the most generalizable features of the current customized system and turn that into a separate SaaS on its own. The customers will likely be other businesses who require those features but probably in different contexts.
2.2 is a slightly different take of 2.1. It also takes option 1 for inspiration for features, but the ideal customer is other developers like me who need to write customized software for B2B clients. Take my experience as a developer writing customized software for B2B clients and develop micro-SaaS that targets the biggest pain points for developers when they write customized software for B2B clients.
2.3 takes inspiration neither for features or customers from option 1. It is similar to option 2.2 in that it also targets developers like me. Instead, it’s about targeting the biggest pain points for developers when they try to write micro-SaaS. Very meta, I know.
What I am trying now
Any of the options under 1 and 2 require a fundamental change in the way I’m spending my time. If I were to choose 1, I need to free up time to look for and talk to potential customers. Option 2 and its variants also require free time to build. At the same time, I cannot abandon any efforts to maintain and improve the existing system as that accounts for the bulk of my revenue.
Recall the Nathan’s ladders and Rob’s stair steps I mentioned at the start of the article. Directionally, they are right. Progress is made as you move from one step or one rung to the next. What they fail to point out is the tricky part during transition. When you’re balancing yourself in your current rung with only one limb as you lift another limb in mid-air trying to plant it in the next rung. I feel like that right now.
Adding to the difficulty of planning is that I believe most of the ladders, or staircases Nathan and Rob cite, are only understood on hindsight. Not while you’re doing it.
Take for e.g. Nathan’s piece which articulates 3 different ladders: the services based ladder, the productized services ladder, and the products ladder. I cannot use them wholesale for my situation. Currently, I feel my situation is a bit of a cross between the pure services based ladder and the productized services ladder.
I used to agonize that I don’t have a recipe to follow blindly step by step to build my business, but now I’m a bit more accepting. It is how it is.
So what I am trying now is to experiment with changing my time allocation: 20-25 hrs a week on maintaining and adding more features to the existing system, 10 hrs on building a micro-SaaS, and another 10 hrs on miscellaneous stuff such as spending time writing 30 posts in 30 days, and participating in communities I’m interested in. Basically, activities that don’t neatly fall into the previous two buckets.
As for which options 1, 2, or 3, I’m going for, the answer is: all of the above and at the same time somehow until something breaks for me.
This post is a bit detail oriented and inward looking. No choice, given the only software business I’m deeply involved in is my own. If this is not your cup of tea, don’t worry I will correct this in the next post. In the next post, I will indulge my inner philosopher and dive into the more abstract aspects of choosing what ladder and stair-steps to go after.