Founders hiding in plain sight

Prediction: The increasing power of “no-code” tools will lead to an explosion in the number of niche, B2B software businesses. The current venture capital model isn’t a good fit for these businesses, however. As a result, there will be an increase in demand for alternative funding models. As these businesses mature, more and more players will seek to acquire them to benefit from their consistent cash flows, leading to a boom in micro private equity.

A new era of entrepreneurship

It’s easy to discount the power of new tools (especially any referred to with the easy-to-dismiss misnomer of “no-code”), so let me start by grounding this prediction in a recent conversation I had with the owner of a small design and architecture firm.

Over the past 15 years, this firm has developed some stunning technology that enables them to construct homes five times faster than a normal developer. They design every part off-site on the computer, manufacture it with a CNC machine on-site, and fit the pieces together like a puzzle. The technology is a marvel.

Which is why I was surprised when the owner lamented that the biggest challenge facing his firm was something so mundane: budgeting.

Construction is a complicated business with tight margins, and construction budgets need to evolve alongside shifting client expectations and real world realities (weather, missing parts etc.). The team had looked everywhere for a budgeting software solution that would meet their unique needs. They finally found one that almost worked, but it was imperfect, bloated with additional features, and cost $160/user/month.

Then, somebody at the firm came across a few “no-code” tools, namely Airtable (disclosure: I work for Airtable) and Zapier. They used these tools to build a budgeting solution that fit their needs. Once they got it working, they cancelled that other software subscription and haven’t looked back.

During our meeting, the owner demoed the budgeting system they had built and it was truly impressive. It was hacked together, no doubt, and somewhat fragile, but the fundamentals of the solution were all there. What was particularly impressive was that there were no software engineers on the team. Just some entrepreneurially-minded people with a deep understanding of their unique problem and access to the tools to build a solution.

My immediate reaction: I wonder how much they could charge other design and architecture firms for this solution?

Realistically, they couldn’t sell it as is. As is often the case with “no-code” solutions, they would need to add some additional features with…dare I say it…code. But with these tools they had done a lot of the hard work. They had already designed the underlying database schema and the business logic required. They had derisked the solution by using it, and evolving it over time, in their own business. They knew their target market. They were so close.

That’s when I realized that I was seeing the model for a new era of software entrepreneurship playing out in front me. And these entrepreneurs exist in every industry, in every department. They’re hiding in plain sight.

This is where others may disagree. But experiences like the one described above have me convinced — the increasing power of “no-code” tools means we’re moving from a world where only programmers can build software to a world where any knowledge worker can build software.

So, what’s scarce in a world where everybody is empowered to build software? Design/UX, go-to-market, and deep industry expertise. In particular, I imagine industries that are underserved by software will be fertile ground for the next cohort of entrepreneurs. Just like the owner of this design and architecture firm, there are countless entrepreneurially-minded people who deeply understand the problems their industry faces, but just haven’t had the tools to build solutions until now.

Many of these people will build solutions for their companies, take the promotion, and keep working. However, some of these builders will recognize that they can sell these solutions, and will seek to start companies to capture the value that they have created.

This is what will lead to an explosion of niche B2B software companies.

The rise of venture capital alternatives

Venture capital firms aren’t well set up to fund these types of businesses. Given the limited addressable market that these businesses will be going after, they won’t bring the potential for billion dollar outcomes that makes the venture capital business model work. That doesn’t mean these won’t be amazing, life-changing businesses for the founders! But, as my former team over at Founder Collective reminds entrepreneurs again and again, venture capital is a hell of a drug and it’s not for everyone, rightfully so.

As a result, I expect we’ll see an increase in demand for alternative funding models in the next few years. Here are a few interesting models that I expect will start to (or continue to) gain prominence:

  • “No-code” startup studios: Turning these solutions into businesses won’t be trivial, and the startup studio model may actually work well here. The “no-code” founder could bring the derisked solution and industry expertise. The studio could augment that with a bit of funding, go-to-market expertise, cheap dev resources, and design/UX chops. I haven’t seen any of these studios crop up yet, but would be very interested to talk with anyone thinking about this space.

In short, I predict that “no-code” tools will empower a new type of entrepreneur, enable a new model for entrepreneurship and catalyze a renewed interest in alternative funding models. Downstream of this, micro private equity shops will rise to acquire these cash flowing businesses at a scale we haven’t yet seen.

However, it’s still early. I may be wrong. And I’d love to discuss and debate these ideas more! In particular, here are some questions that I’m interested in digging into:

  • What other alternative funding models exist today? Who is doing this particularly well? Where are there gaps?

If you’re interested in discussing any of the above, or if you’re a founder hiding in plain sight, please reach out! You can find me at david@davidlpeterson.com or on Twitter @edavidpeterson.

Also, these each deserve their own post, but here are some other ancillary predictions and opportunities for new entrants:

  • Software development / product design consulting firms will get disrupted: at the lower end of the market, software development firms will be disrupted by “no-code” consulting firms that can build “good enough” solutions faster and cheaper. If you’re starting one of these (or thinking about starting one), I’d love to chat.

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