I think it's getting harder, now the world is getting more developers and more fully funded startups.
Small software shops don't meaningfully compete with funded startups, because funded startups have to have some plausible path to growing massive, and the types of things small software shops ship just have to have a plausible path to generating $1k to $25k MRR. "A spreadsheet software better than MS Excel" is a fundable startup; a single program better than a single Excel spreadsheet is, very plausibly, a piece of software that can be sold in a manner successful for a small shop.
I'm personally and professionally involved in the small-software-shop community, and my anecdotal impression is that it's the best time ever. The same sources of leverage which make starting a startup attractive help out small shops, too. You can achieve global distribution on the App Store, Google, Facebook, etc. You can charge businesses tens of thousands of dollars on the SaaS model for software which is plausibly within the reach of a single developer. You can take advantage of infrastructure like AWS, Heroku, etc to get your product to market at a fraction of the complexity and expense of doing a print run of 1,000 CDs. You can take advantage of frameworks which make producing business value far, far easier than it was with more archaic tools. Your customers are disproportionately likely to consume software already (a plus!), including software which you can integrate with or expand, giving you a built-in market with levered upside to your own coding efforts.
I used remember a large community that has now disappeared. There used to be a lot of mISV conferences, I only know a few now. I know people who used to be mISVs, and they aren't anymore.
Even hacker news's favourite patio11 isn't anymore.
Thanks!
It's not enough to do full-time yet, but there are distinct advantages I have that VC-funded startups don't. For example, I can serve SMBs/smaller companies, but for a VC-backed company these organizations aren't worth their time.
Clearly they have advantages I don't have either (time, headcount, etc), but the presence of a market is a great thing, because I don't have to guess if companies are willing to pay for it.
In the early days micro isv's were fairly common, and well known. I don't hear much about them anymore.
There's also a ton of new niches opening up, but you need to be aware of them and they don't happen in a vacuum. You can't just sit in your home office that imagine a new niche, you need to surround yourself with people doing other stuff.